PE has two sides.
Highe PE is generally considered only due to price increasing beyond logical limit.
But there is a denominator too. High PE is also due to temporary decrease in earnings due to many temporary reasons. So We first needs to find out if high PE is due to increase in price or due to decrease in earnings. And if its due to decrease in earnings, then we have to analyse if its temporary decrease or business model is crumbling. With this understanding, can you verify whether above High PE are pertaining to which reasons?
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I agree that in some cases PE is high due to temporary phenomenon such as margin contraction or consumer slowdown.
What triggered above post is while I was going through the list of companies in my watchlist that can be considered as good quality business, in most cases valuation seems to be stretched. I donât mind paying extra premium for quality but even after that I donât feel confident enough.
For example last year I have taken shelter under PSU due to better MOS and dividend while growing at fair rate, I thought looking into IT as it is underperforming for a while but no companies available at under 20 PE in that case as well.
Again I know PE is not the only parameter but in case such as IT PE and Div yield is usually a good indicator when you can consider adding them in portfolio and what worries me, as I mentioned in the above post, is that people are becoming very confident about paying a 70 PE for businesses like Kalyan Jewellers
For example, in case of LTI mindtree , PE is 39 but if its earnings arr depressed from last 2-3 quarters compared to earlier period, then Its PE is not reflecting the correct picture. May be real PE is less than 20 but due to depressed earnings ,its showing 39. Just check its earnings compared to earlier periods and PEs too
Thank @Mudit.Kushalvardhan for your inputs and I completely agree with your points.
LTI, MapMyIndia and even Affle in IT, Varun bev in FMCG, Polycab in cables and few other companies are growing and that justifies the PE.
Again PE was included because it is an easier parameter to gauge compared to sales/mcap and opportunity size etc.
Itâs just that the increasing number of IPOs, QIPs, and the overall market mood, where almost everything is priced to perfection, coupled with very high returns in Mid/Small caps, worries me a bit.
I understand that itâs difficult to time the market, which is why Iâm not selling my existing positions. However, currently, I am a bit cautious about adding new positions with very high conviction, so for now, I wonât add anything all at once
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Hi
There are so many cos that are cheaper and growing at good rates than what you have mentioned. I will just share 3 examples from my own folio where trailing PE is <15 and last 3-year EPS growth was >15%. Now I dont know what next 3-year growth will look like.
Godfrey Phillips: 14x and 22% growth
Chamanlal Setia: 10x and 31% growth
Geekay wire: 12x and 59% growth
If you just run this query on screener you will find 426 results. So there are plenty of opportunities, the only question then is if you are looking at the right place.
Good luck with your investing journey and do share you ideas 
Cheers
Harsh
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Thank you so much @harsh.beria93 for your input, I love your portfolioâs thread and keep looking for ideas from there.
Got interested in Rice companies as there are mainly 3-4 major brands out there and most of those trading at reasonable valuations. Yes, I am looking at Chamanlal and KRBL (aware about CG issues)
Just going slow and reading more companies in detail. I can stay invested only if I have enough confidence in my holdings and feel confident about it.
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What about LT foods? Its numbers are better than KRBL and seems better placed as major business is exports. Just one query: Reason for fall from Rs.90 to Rs.19 between Jan 2018 to Aug 2019? What happened during this time to have such a steep fall? Also ROCE is less than 20âŚBut at 15 and increasing trend.
Yes looking into it.
Apart from all the information available on valuepickr, if we do Dupont analysis to summarize
- KRBL operates at higher margin
- Chamanlal has better efficiency
- LT foods uses financial leverage better
LT foods and Chamanlal trading almost at ATH while KRBL is ~ half compared to ATH due to CG issue.
Not able to understand lower valuations for these companies in spite of strong brand and higher market share.
Still not convinced though to take position in any of these but tracking it closely
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