What is PE Ratio ? Complete Guide (India & Global Examples)

PE Ratio 

What is PE Ratio? The Price-to-Earnings (PE) ratio shows how much investors are willing to pay for ₹1 (or $1) of a company’s earnings.

Formula: PE Ratio = Current Share Price ÷ Earnings Per Share (EPS) 

Example: If a stock price is ₹400 and EPS is ₹20

 PE = 400 ÷ 20 = 20 

This means investors are paying ₹20 for every ₹1 the company earns. It is also called the earnings multiple.

Why is PE Ratio Important? Investors use PE ratio to Check if a stock is expensive or cheap
• Compare companies within the same sector
• Understand growth expectations
• Compare Indian and global companies It is one of the most widely used valuation tools in the world.

Important Rule: Compare Within the Same Industry PE ratios should mainly be compared between companies in the same sector. 

Different industries have different: 

• Growth rates

• Profit margins

 • Risk levels

• Business models

Comparing a technology company with a utility company using PE ratio can be misleading.Types of PE Ratio 

1️⃣ Trailing PE (Most Common / Trading PE)

 • Uses earnings from the last 12 months (TTM)

 • Based on actual reported profits 

✅ This is the PE ratio normally available on trading platforms

2️⃣ Forward PE 

• Uses expected earnings for the next 12 months

• Based on analyst estimates If Forward PE is lower than Trailing PE → Earnings expected to grow

If Forward PE is higher than Trailing PE → Earnings expected to decline

2️⃣ Technology Sector – Higher PE (Growth Sector) Technology companies usually trade at higher PE ratios because investors expect strong growth. 

Indian Tech Companies (Typical PE: 25–40)

• TCS

• Infosys

• HCL Technologies

• Wipro 

Global Tech Companies (Typical PE: 25–60+) 

• Apple

• Microsoft

• NVIDIA 

• Alphabet

What is a Good PE Ratio?

 Below 10 → Cheap or struggling

10–20 → Fair valuation

20–30 → Growth company

30–40 → High growth stock

50+ → Very high growth or speculative 

Always compare within the same industry and market.

Final Takeaways

 • Tech companies generally have higher PE

• Utility companies usually have lower PE

• The commonly available PE while trading is Trailing PE

PE ratio is a starting point, not the only factor