How to check if a stock is overvalued or undervalued? | What is PE Ratio? What is PEG Ratio?
- Course to learn everything about money management: https://www.sahilbhadviya.in/s/store/courses/description/Everything-about-money-managementLink to open Zerodha account: https://zerodha.com/open-account?c=ZMPGRY- Instagram: https://instagram.com/sahilbhadviya_?igshid=1mvrux9m5hdjf- Quora: https://www.quora.com/profile/Sahil-Bhadviya- Telegram: https://t.me/s/sahilbhadviyaDisclaimer: This video is only for education purpose. Consult your financial Advisor before investing your money._____________________________________________________In this video, I have explained how to check the valuation of a company i.e. how to check if the company is overvalued or undervalued. I have explained 2 ways i.e. PE ratio and PEG Ratio. PE ratio is calculated as “Price per share” divided by “Earnings per share”. PEG ratio is calculated as PE ratio divided by earnings growth.I have explained the PE ratio and PEG ratio with real-world examples of ITC, HDFC Bank, and Jubilant FoodWorks to undervalued which company is undervalued, fairly valued or overvalued.First, check the PE ratio of this company in the last 3-5 years and identify the median PE. Then compare the current PE with the median PE. If the current PE is more than median PE, you can say that the company is overvalued. If the current PE is less than the median PE, you can say that the company is undervalued.Secondly, you need to look at the PE ratio of the industry. For example, if Infosys is trading at a PE of 25 then what is the PE ratio of entire IT industry. Ideally, there should not be too much of a difference if the companies are at par. For example, if you want to compare Infosys PE with Industry, you can look at the PE ratio of TCS, Wipro and HCL that are at par with Infosys. This would give you an idea of PE movement of the stock as compared to the other companies in the same sector.