Enter Stock Data
Fair value estimates update automatically
Valuation Analysis
Calculation: EPS × Sector PE
Positive = Premium (Above Fair Value) | Negative = Discount (Below Fair Value)
PE-Based Valuation Method
This method estimates a stock's fair value by assuming it should trade near the average Price-to-Earnings (PE) ratio of its sector/industry peers. It's a quick baseline comparison rather than a comprehensive valuation.
How It Works
Fair Value = Earnings Per Share (TTM) × Sector Average PE
The stock's TTM earnings are multiplied by what the market typically pays per rupee of earnings in that industry.
Example
Scenario: A stock has TTM EPS of ₹10 and trades at ₹250. Its sector's average PE is 20.
Fair Value: ₹10 × 20 = ₹200
Analysis: Current price ₹250 vs. Fair Value ₹200 = 25% Premium (potentially overvalued relative to peers)
Interpretation
Premium (Above Fair Value): The stock trades higher than sector average. Could reflect superior growth prospects, management, or could be overvalued.
Discount (Below Fair Value): The stock trades lower than sector average. Could represent value opportunity or reflect specific risks.
Important Limitations
Highly Simplified
This method ignores future growth potential, debt levels, management quality, competitive advantages, cash flow generation, and overall market conditions. It's just one data point.
EPS Quality Issues
TTM EPS is historical; future earnings may differ significantly. For loss-making companies (negative EPS), PE valuation is meaningless. One-time gains/losses distort earnings.
Sector PE Problems
The "average" PE can be skewed by outliers. Defining the correct sector is subjective. Companies within a sector can have vastly different growth profiles and risks, making comparison problematic.
Not Investment Advice
This calculation is purely educational and should never be the sole basis for investment decisions. Comprehensive research, risk assessment, and professional advice are essential.
Consider Other Methods
Use complementary approaches: Discounted Cash Flow (DCF), Price-to-Book (P/B), Dividend Discount Model (DDM), EV/EBITDA, Price-to-Sales (P/S) for a holistic view.
When to Use This Tool
- Quick screening of whether a stock trades at premium/discount vs. peers
- Comparing valuation levels across multiple stocks in the same sector
- Educational purposes to understand PE-based valuation basics
- Initial research stage before deeper analysis
- NOT for final investment decisions (too simplified)
Frequently Asked Questions
TTM EPS: Check Screener.in, Tickertape, Moneycontrol, Google Finance, or Yahoo Finance. Look for "Key Metrics" or "Financials" section. Sector PE: Available on the same sites, often in peers comparison or sector overview sections. Note: Different sources may calculate slightly differently.
PE-based valuation is not applicable for loss-making companies. The PE ratio becomes meaningless. For such companies, use alternative metrics: Price-to-Sales, Price-to-Book, or DCF models based on projected future profitability. This calculator requires positive EPS.
Several reasons: Market expects superior growth prospects. Company has unique competitive advantages (strong brand, patents, market position). Lower debt or stronger balance sheet. Superior management. Niche market position. Conversely, sector PE is just an average baseline; individual companies justifiably trade at different levels.
Not necessarily. A low PE stock might be undervalued, but it could also face significant challenges, have poor growth prospects (value trap), or hide quality issues. A high PE stock might seem expensive but could be justified by high growth expectations. Context and fundamentals matter.
Absolutely not. This is a simplified educational tool. Investment decisions require comprehensive research: company financials, industry trends, management quality, competitive landscape, risk factors, your investment goals, and risk tolerance. Always consult a qualified financial advisor.
PE-based (this tool): Quick, market-relative, based on current earnings. DCF: Incorporates future cash flows, growth assumptions, more comprehensive. P/B: Based on book value. EV/EBITDA: Removes impact of debt and taxes. Use multiple methods for complete picture.
Quarterly, when quarterly results are announced (EPS updates). Annually for overall review. Additionally, recalculate when sector average PE changes significantly or when company reports extraordinary results. Avoid obsessive daily tracking.
No. PE-based valuation doesn't directly incorporate dividends. Dividend-paying stocks are often valued using Dividend Discount Model (DDM) instead. This tool provides only a basic earnings-multiple comparison.
This Fair Value Estimator is a basic calculation tool for educational purposes only. It ignores numerous critical factors affecting true stock value (growth, debt, assets, management, market conditions). It is NOT financial analysis or investment advice. Never base investment decisions solely on this estimate. Always conduct thorough research and consult a qualified financial advisor registered with SEBI.