In the world of finance and stock market, we often hear “more is better” but let’s face it, sometimes more isn’t just better—it can be risky and downright dangerous! And when it comes to a company’s P/E ratio, more can turn out to be disastrous. However, JIOFIN (Company: Jio Financial Services Ltd.) really has some guts when it comes to Price-to-Earnings (P/E) ratio.
Wait, what why?
So far, we’ve seen P/E ratios of 5, 10, 15, 20, 25, 50, and even in the hundreds for old loss-making companies. But when you look at Jio Financial Services Limited (JIOFIN), the P/E Ratio is eye-popping: 6,788.36. This means that investors are paying ₹6,788.36 for every rupee of earnings from Jio. Compare that to another player in the sector, Bajaj Finance; investors are paying just ₹34.47 for every rupee of earnings. Now that’s 200 times more than the top player in the NFBC sector.
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JIOFIN Comes With A P/E Ratio That is 300 Times More than the NBFC Sector P/E
Both Jio Financials and Bajaj Finance are NBFCs (Non-Banking Financial Companies), and the current NBFC sector P/E is 20.68. Apart from Bajaj Finance, Jio Financials has many other peers (Shriram Finance, Cholamandalam, Muthhoot, Sundaram Finance), but all have P/E ratios between 15 and 35. While, growth investors might look at it as a growth indicator, looking at the P/E ratio of Jio Financials, just imagine how much this stock can fall if there’s even a little pressure on it. Perhaps, it could come crashing down faster than a house of cards!
The P/E ratio plays a crucial role in fundamental analysis – it is like a financial GPS. Investors use it to decide which company’s shares to invest in and which to stay away from. A low P/E ratio means that the shares are available at a good bargain, which can lead to good returns in the long term. Moreover, it helps investors understand which sector or industry is providing better value. Yes, like a crystal ball, giving investors insights into which sectors are ripe for the picking.
Further, aside from its stratospheric P/E ratio, Jio Financials doesn’t seem to have much else going for it. Bajaj Finance, for instance, boasts an EPS (Earnings per Share) of 194.84, while Jio Financials is barely scraping by at 0.05. And when it comes to Return on Equity (ROE), Bajaj Finance is cruising at 22.23%, while Jio’s barely making a blip at 0.31%.
So, the million-dollar question is: would you rather stay away from such stocks with exorbitant P/E ratio like JioFin or invest in it thinking it to be the next big thing?
All You Wanted to know about P/E Ratio aka Price-to-Earnings Ratio
What is It?
By definition, Price-to-Earnings (P/E) ratio is a fiscal metric used to estimate a company’s current stock price relative to its EPS i.e. earnings per share. It is calculated by dividing the market price per share by the earnings per share.
The P/E ratio is crucial for investors because it provides insights into how much investors are willing to pay for each unit of earnings generated by the company.
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Here’s why it’s an important parameter:
Valuation: A low P/E ratio suggests that the stock may be undervalued, while a high P/E ratio indicates that the stock may be overvalued. Investors can use this information to make decisions about whether a stock is worth buying or selling.
Comparison: The P/E ratio allows investors to compare the valuation of different companies within the same industry or sector. It provides a standardized measure for evaluating stocks and helps investors identify potential opportunities.
Risk Assessment: A company with a high P/E ratio may be more susceptible to fluctuations in earnings or market conditions, making it riskier for investors. Conversely, a low P/E ratio may indicate stability and lower risk.
Overall, the P/E ratio is a valuable tool for investors to assess the attractiveness of a stock and make informed decisions about their investment portfolio.
Disclaimer: The article is for educational purpose and our only intent is to educate traders and investors especially beginners through our content by introducing and illustrating fundamental metrics, one at a time.
