Table Of Contents
- Price Earning Ratio Meaning
- What Is A Good PE Ratio
- Price-To-Earnings Ratio Formula
- Price-To-Earnings Case Studies
- Final Conclusion
Meaning Of Price-To-Earnings Ratio:
The P/E ratio simply tells us how much investors are ready to pay for every rupee of profit a company makes. In simple words, the P/E ratio shows whether a stock is expensive or cheap compared to the company’s actual income.
What is a good P/E ratio (Price earning ratio)?
There is no fixed rule for what counts as a high or low P/E ratio.
Generally, a high P/E ratio is seen as a sign that the stock is expensive, so many investors tend to avoid it. On the other had, a low P/E ratio is often viewed as having less potential-which is actually a common mistake made by investors.
Price-To-Earnings Ratio Formula: There is already plenty of information available online about the P/E ratio formula and the basic points. You can easily find and understand those from Google.
I prefer to spend time on something that is rarely discussed and not easily available elsewhere. I truly believe this insight is valuable, and you wouldn’t want to miss it – because it can help you avoid common mistakes that most investors make.
Price-To-Earnings Ratio Interesting Case Studies
A. Companies whose P/E ratio (price-to-earnings ratio) is highest:
Let us first take 10 companies that currently have the highest Price-to-Earnings (P/E) ratios. We will examine how much their share prices have changed and also study the relationship between the change in their P/E ratios and share prices over the last 5 years. This will give you a clear idea of whether there is any co-relationship between the two or not.
- Modi Rubber
| Period | Price Behaviour | P/E Ratio Behaviour | Relationship |
|---|---|---|---|
| 2019 – Early 2020 | Price was declining | P/E was relatively stable then dropped sharply | Weak / Inverse at the end |
| April 2020 – Mid 2021 | Strong price rally (from 25 to 160+) | P/E went deeply negative (fell to around -350) | Strong Inverse |
| Mid 2021 – 2022 | Sharp price correction | P/E recovered sharply from deeply negative to positive | Inverse |
| 2022 – 2026 | Price mostly sideways to mildly up (range 80–160) | P/E stayed almost flat around 15–20 | Very Weak / Almost No correlation |
In this particular stock, the P/E ratio and share price did not move together most of the time. There was a clear inverse relationship only during the loss-making period. After the company returned to profits, the P/E ratio stopped reflecting price movements meaningfully.
2. Machino Plastic Ltd:
| Period | Price Behaviour | P/E Ratio Behaviour | Relationship |
|---|---|---|---|
| 2019 – Early 2026 | Price moved in a wide range (from 50 to 440) with multiple ups and downs | P/E ratio stayed almost flat near zero for most of the time | No meaningful correlation |
| Mid to Late 2026 | Price corrected from the high of 440 towards 257 | P/E ratio suddenly exploded to an extremely high level (19,037) | Strong temporary spike (likely due to very low/near-zero earnings) |
There is almost no correlation between the share price and P/E ratio. The P/E stayed near zero for years despite big price movements, and the recent extreme spike is only due to very low earnings.
3. Graviss Hospital
| Period | Price Behaviour | P/E Ratio Behaviour | Relationship |
|---|---|---|---|
| Apr 2026 – Jun 2026 | Price moved in a narrow range (₹26–35) | P/E ratio stayed near zero | No correlation |
| Jul 2026 onwards | Price continued in the same narrow range | P/E ratio suddenly spiked above 5,000 | No correlation (distorted P/E due to very low earnings) |
Almost zero correlation between share price and P/E ratio. The extreme rise in P/E is not because of price increase, but due to a sharp drop in earnings.
4. Keto Motors
| Period | Price Behaviour | P/E Ratio Behaviour | Relationship |
|---|---|---|---|
| May 2026 – Aug 2026 | Strong uptrend (from 110 to 237) | P/E ratio remained deeply negative and mostly declined further | Inverse correlation |
Clear inverse relationship. While the share price rose sharply, the P/E ratio stayed negative and moved lower — indicating the company is making losses.
5. Shentracon Chemicals
| Period | Price Behaviour | P/E Ratio Behaviour | Relationship |
|---|---|---|---|
| Sep 2025 – Aug 2026 | Strong and steady uptrend (from 18 to 131) | P/E ratio data is not available / not plotted | Cannot be determined |
Share price has risen sharply, but P/E ratio is not visible on the chart (likely due to negative or zero earnings). Therefore, no clear correlation can be established.
6. Satani Bearings:
| Period | Price Behaviour | P/E Ratio Behaviour | Relationship |
|---|---|---|---|
| Mar 2026 – Jun 2026 | Gradual decline (from 300 to 268) | P/E remained negative and slightly declined | Weak / Mild Inverse |
| Jun 2026 – Aug 2026 | Price stabilized and recovered slightly | P/E ratio surged sharply from negative to +579 | No clear correlation |
No consistent relationship. Price moved in a limited range while P/E ratio swung dramatically from deeply negative to a very high positive level (due to change in earnings).
7. Sical Logistics ltd:
| Period | Price Behaviour | P/E Ratio Behaviour | Relationship |
|---|---|---|---|
| Oct 2023 – Sep 2025 | Steady downtrend (from 240 to 70) | P/E stayed mostly flat near zero / slightly negative | No meaningful correlation |
| Sep 2025 – Jan 2026 | Price continued sideways to mildly down | P/E crashed sharply to around -400 | Weak Inverse |
| Jan 2026 – Aug 2026 | Strong recovery (from 70 to 116) | P/E recovered sharply to positive (13.3) | Positive correlation |
Mixed relationship. For most of the period there was almost no correlation. Only in 2026, when earnings improved, both price and P/E ratio moved up together.
8. Sapphire Foods India Ltd:
| Period | Price Behaviour | P/E Ratio Behaviour | Relationship |
|---|---|---|---|
| Apr 2022 – Mid 2025 | Overall uptrend with volatility (150 → 400) | P/E stayed relatively stable near zero / slightly positive | No meaningful correlation |
| Mid 2025 – Early 2026 | Sharp decline (from 375 to 150) | P/E crashed deeply negative (to around -12,000) | Positive correlation (both fell) |
| Early 2026 – Aug 2026 | Strong recovery (from 150 to 235) | P/E recovered sharply towards zero | Positive correlation |
Mostly weak correlation for a long period. Clear positive relationship appeared only during the sharp fall and recovery phase in 2025–2026, when both price and P/E moved in the same direction due to big changes in earnings.
9. Reliance Power Ltd:
| Period | Price Behaviour | P/E Ratio Behaviour | Relationship |
|---|---|---|---|
| 2019 – Early 2021 | Sharp decline then sideways | P/E stayed near zero | No correlation |
| 2021 – Mid 2022 | Mild recovery | P/E spiked sharply upward (to 130) then crashed | Weak / Temporary |
| 2022 – Mid 2025 | Strong uptrend (from 10 to 75) | P/E stayed low and range-bound | No meaningful correlation |
| Mid 2025 – Aug 2026 | Sharp decline (from 75 to 23) | P/E rose then turned negative | Mild Inverse |
Overall weak correlation. Big price moves (both up and down) occurred while the P/E ratio stayed relatively low or moved independently, showing that price action was not consistently driven by P/E changes.
10. Kabra Extrusion Ltd
| Period | Price Behaviour | P/E Ratio Behaviour | Relationship |
|---|---|---|---|
| 2019 – Mid 2025 | Strong long-term uptrend with corrections | P/E ratio stayed almost flat near zero | No meaningful correlation |
| Mid 2025 – Early 2026 | Sharp decline | P/E turned slightly negative | Weak Inverse |
| Early 2026 – Aug 2026 | Strong recovery (from 200 to 517) | P/E exploded to an extremely high level (3,570) | No real correlation (distorted due to low earnings) |
Almost no consistent relationship for most of the period. The recent extreme spike in P/E is not because of price rise alone, but mainly due to a sharp drop in earnings.
(Based on all 10 companies analysed).
After studying the price and P/E ratio charts of 10 different companies, the overall conclusion is clear:
| Observation | Frequency | Insight |
|---|---|---|
| No meaningful / very weak correlation | Most cases | Price and P/E often moved independently |
| Inverse relationship | Few cases | Seen mainly when company was making losses |
| Positive correlation | Rare | Appeared only during short recovery phases |
| Extremely high or negative P/E | Common | Caused by very low or negative earnings, not by price movement |
Final Conclusion:
There is no consistent or reliable relationship between share price and P/E ratio.
- A high P/E does not always mean the stock is expensive.
- A low or negative P/E does not always mean the stock is cheap or has no potential.
- In many cases, the P/E ratio becomes distorted due to temporary low profits or losses, while the share price moves for completely different reasons.
This is why relying only on P/E ratio to judge whether a stock is cheap or expensive can lead to common mistakes.
