While looking at the heat map of midcaps, I can see that its been really high compared to Largecaps.
When Largecaps P/E is around 24, for midcaps is whopping 52!!!
Can we infer that market crash is evident in near future for mid-cap segment at least?
Will love your inputs on the same.
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Where did u find this heat map. Looks interesting… I am finding it difficult in the current market to find good bargains. just 3-4 years back many multibaggers were available in the market. Now hardly companies trade at 20℅ below intrinsic valve.
Am waiting for market to revert to mean sensex P/E of 18. However sitting on cash is too damn hard.
@Alphin, I got the heatmap on Nifty Midcap50
Also, to check for nifty50 P/E trend from 2008, you can refer Nifty50 P/E
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P/E of 52 does not automatically make the stock over priced. Valuation is always a function of future cashflows and not existing cashflows. P/E gives you valuation based on existing profits. You have to look at P/E using the following steps:
- What is the expected growth in revenue and profits for the next 2 years
- From #1 calculate the expected 2 year forward profit
- Calculate the 2 year forward P/E and see if it lies in a reasonable range (will differ for sectors)
For example, Eicher Motors was valued at 90 P/E some time in 2015. That did not imply that it was overpriced. Just that the profit growth rate was too high and 2 year forward P/E came to around 25-30. So everything hinges on your assumption of the profit growth rate.
Smaller companies, due to their smaller bases, could have very high growth rates which might justify their high P/E multiples.
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Sun Pharma current price is 756. Its last 4 quarter EPS is in Negative. Even if we remove negative EPS of three quarters then PE comes around 2500.
So what does it signify? Neither company’s Cash Flow is growing, nor PE good, Profit is in negative for last 3 years.
Still company stock price is just going up, up and only up.
What is driving stock price of company like Sun Pharma?
Stocks are given higher P/E in the hope that they will give higher earning to compensate it and make them in line with the market but post current earning season it looks difficult and this is my point of concern.