Should You Be Tempted To Buy Prolife Industries Limited (NSE:PROLIFE) At Its Current PE Ratio? Simply Wall St NewsSource: simplywall.st
Jul 24, 2018 5:40 PM 5+ mon ago
NSEI:PROLIFE PE PEG Gauge October 22nd 18 P/E is often used for relative valuation since earnings power is a chief driver of investment value. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings. Formula P/E Calculation for PROLIFE Price per share = ₹27.2 ∴ Price-Earnings Ratio = ₹27.2 ÷ ₹3.676 = 7.4x On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. Ideally, we want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as PROLIFE, such as size and country of operation. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. Since similar companies should technically have similar P/E ratios, we can very quickly come to some conclusions about the stock if the ratios differ. Since PROLIFE’s P/E of 7.4 is lower than its industry peers (16.6), it means that investors are paying less for each dollar of PROLIFE’s earnings. This multiple is a median of profitable companies of 25 Chemicals companies in IN including Mysore Petro Chemicals, Hindcon Chemicals and Vikas Proppant & Granite. One could put it like this: the market is pricing PROLIFE as if it is a weaker company than the average company in its industry. A few caveats Before you jump to conclusions it is important to realise that our assumptions rests on two important assertions. The first is that our “similar companies” are actually similar to PROLIFE. If the companies aren’t similar, the difference in P/E might be a result of other factors. For example, if you inadvertently compared Read more.
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