How do you value a stock? Which has a high valuation, and which is cheap? It all depends on the ratio you use to ascertain value. And relying entirely on the price to earnings (PE) ratio may lead to wrong investment decisions. Consider this example: Twelve years back, the stock of one MNC FMCG company was quoting at a PE multiple of 44 at a time the Nifty’s PE was at 25. Since then, the market capitalization of the stock has grown 10 times and its PE ratio today stands at 68. So, if you had made a decision to buy or sell the stock based on its PE number, you would have lost a great opportunity to create wealth. So, look beyond the PE ratio.
