Why Buyers` Buy Some Stocks Despite High P/E?
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Till Some of the Stocks having high P/E, What might be the Reason? Why Buyers` buying these stocks despite high P/E. For example (P/E JUBLFOOD=102, DMART=178, IRCTC=153). We can find lot of reason for this. But I can find only 2 reasons and I have given those here.
Reason Number 1: The company generate good profit & Buyers` belive very good future to these companies.
Reason Number 2: Very Less Total Number of Shares
Reason Number 3: Promotor Holding Very good % in the companies
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Yes while comparing the industry p/e above stocks have high than the industry P/E. The fact is JUBLFOOD totally 13 crores shares only available. Around 40% with promotors so available is less than 8 Crores so if some fiis or diis buy massive quantities they have to give premium price to this stock. This is the reason these stocks have very volatile and up or down massively. These are called multibaggers
High PE is given to stocks provided these stocks are very stable in their profits and these profits will keep generating for many years to come. Longevity of the profits is the most important aspect for high P/E, in financial terms, there is a value called terminal value which is given very high to these stocks by the market participants.
Reason Number 2: Very Less Total Number of Shares is not right as example MRF has very less shares but its PE is only 25
Sometimes due to some event ex: covid, the profits take a hit, most of them reported very low profits, resulting in P/E, the denominator E getting reduced, this also increases the P/E if the price (numerator remains same).
Continues Profit making companies like RIL, TCS, INFY P/E very low only. Profit is not the metrics for high P/E
To compare individual company P/E with that of its corresponding Industry P/E.