Using the P/E ratio to compare companies in the same industry

The P/E ratio is the easiest way to determine a company's value.

In order to determine which companies share is over / under priced we can use the P/E ratio to compare
the prices of companies in the same sector against each other.

* Companies that have a low P/E Ratio are undervalued, for example, companies with a price earnings
ratio of less than 15 or more than 4.

* Companies that have high P/E Ratio are overvalued, for example, companies with a price earnings
ratio of more than 20.

* As a general rule of thumb (although there are plenty of exceptions), fair P/E ratios are typically in the
14-18 range.

INTERPRETATION

 Alfa Laval India Ltd. always have P/E Ratio more then 20 where other companies in same sector
have P/E Ratio in range of 5-14.we can say that the company’s stocks are over priced.
 BEML always have P/E Ratio in range of 6-13 ,we can say that stocks are undervalued.
 TECPRO always have P/E Ratio in range of 8- 12 we can say that these stocks are more towards
thumb rule.

WHY P/E RATIO INCREASE OR DECREASE.

When the value per share goes up faster than the earnings per share, then the PE ratio goes up. The
higher the PE ratio the more lofty the valuations and the greater the potential for the market to
overheat resulting in a pull back.

If earnings move up faster than the value per share, then the PE ratio will decline. This happens when
the market is transitioning from an overbought situation even as earnings increase.

INTERPRETATION

Alfa Laval India Ltd.

We can see the P/E ratio is increasing in last year, where as in last to last year it
decreased it is because there is increase and decrease in EPS of the company. EPS increased and
decreased because of increase and decrease in the profit after tax of the company and PAT depends on
the sales of the company.so, P/E ratio is decreasing because of sales decline in past years.

BEML

We can see the P/E ratio constantly increasing it is because of constant decrease in the EPS.EPS is
constantly decreasing because of decrease in profit after tax of company and PAT depends on the sales
of the company. so, P/E ratio is decreasing because of sales decline in past years.

TECPRO

We can see the P/E ratio constantly decreasing it is because of constant increase in the EPS.EPS is
constantly increasing because of increase in profit after tax of company and PAT depends on the sales of
the company ,company have also raised their equity capital . so, P/E ratio is decreasing because of
increase in sales and increase in EPS ,and share holders in past years.