🎭 What Is the P/E Ratio?
Imagine you walk into a fancy bakery. One cupcake costs ₹100. It better be worth it, right? Now imagine the cupcake is a company, and the icing on top is its earnings. The P/E Ratio asks: “How many rupees are you willing to pay for ₹1 worth of cupcake icing?”
The math behind the madness:
🧮 P/E Ratio = Market Price per Share ÷ Earnings Per Share (EPS)
If a stock costs ₹100 and the company earned ₹2.50 per share, the P/E ratio = ₹100 ÷ ₹2.50 = 40.
That means investors are saying: “Here’s ₹40, dear company, just for earning ₹1. Don’t spend it all at once.”
💰 Why Should You Care?
Because the P/E ratio is like checking the price tag before buying jeans.
Except, the jeans are a company and they might be on sale... or being hyped up like a Supreme drop.
High P/E = Pricey Popularity
“Oh wow, people love this stock!”
Or... “Run, it's a bubble wearing lipstick!”
Low P/E = Bargain Basement or Value Trap?
“Look! A steal!”
Or... “Look! The stock's been stealing investors’ hopes since 2017.”
📊 A Simple Example (That Even Your Calculator Will Approve)
Let’s say your favourite chai company, “Masala Magic Ltd.,” has a stock price of ₹150.
Its EPS (earnings per share) is ₹5.
So: ₹150 ÷ ₹5 = 30
That means: investors are paying ₹30 for each ₹1 the company earns.
Which begs the question: Would you buy a ₹1 samosa for ₹30 just because it might be tastier tomorrow? Investors do.
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