One of the effective methods for assessing whether a stock is undervalued or overvalued is by analysing key metrics such as the Price-to-Earnings (P/E) ratio and the industry P/E average.
The P/E ratio or Price-to-Earnings ratio compares the current share price to the earnings per share (EPS) of a company, serving as a widely recognised indicator for determining the value of a stock.
When a company’s P/E ratio is significantly higher than the industry average, it may indicate that the stock is overvalued, as investors are paying a premium for its earnings.
Conversely, a substantially lower P/E ratio relative to the industry average could indicate that the stock is undervalued, potentially signalling a buying opportunity.
Following are a few undervalued stocks with PE less than the industry:
Coal India
With a market cap of Rs. 3.1 lakh crores, the shares of a company engaged in mining and production of coal surged by nearly 0.3 percent on BSE to Rs. 506.5 on Thursday.
The company’s revenue from operations stood at Rs. 36,465 crores in Q1 FY25, rising marginally by 1.3 percent YoY from Rs. 35,983 crores in Q1 FY24, while the after-tax profit grew by 4.2 percent to Rs. 10,944 crores from Rs. 10,498 crores, during the same period.
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The stock has a P/E ratio of 8.5, compared to the industry’s P/E ratio of 26.4, indicating that the stock is trading at a lower price or in other words, the stock is undervalued. It has also reported a low PEG (Price/Earnings-to-Growth) ratio of 0.52.
The company witnessed a net profit margin of 25.95 percent in FY24 increasing from 20.34 percent in FY23 and an operating margin of 34.57 percent rising from 27.98 percent, over the same period.
The stock has delivered positive returns of nearly 75.6 percent in the last one year, and around 32 percent of positive returns year-to-date.
Coal India Limited is a Maharatna Company primarily involved in the mining and production of coal and also operates in coal washeries.
General Insurance Corporation of India Limited
With a market cap of Rs. 69,430.4 crores, the shares of the largest reinsurer in the domestic reinsurance market in India slumped marginally by 0.13 percent on BSE to Rs. 397.45 on Thursday.
The company’s revenue from operations stood at Rs. 12,886 crores in Q1 FY25, rising by 15.4 percent YoY from Rs. 11,166 crores in Q1 FY24, while the after-tax profit grew by 43.3 percent to Rs. 1,401 crores from Rs. 978 crores, during the same period.
The stock has a P/E ratio of 9.76, compared to the industry’s P/E ratio of 53.2, indicating that the stock is trading at a lower price or in other words, the stock is undervalued. It has also reported a low PEG (Price/Earnings-to-Growth) ratio of 0.41.
The company witnessed a net profit margin of 14.34 percent in FY24 increasing from 13.92 percent in FY23 and an operating margin of 18.76 percent rising from 18.25 percent, over the same period.
The stock has delivered positive returns of nearly 77.2 percent in the last one year, and around 27 percent of positive returns year-to-date.
General Insurance Corporation of India Limited (GIC Re) is engaged in the business of Reinsurance, and maintains about 60 percent share in the Indian reinsurance market.
Great Eastern Shipping Company Limited
With a market cap of Rs. 17,824.8 crores, the shares of a major player in the Indian shipping industry surged by 1.03 percent on BSE to Rs. 1,218.8 on Thursday.
The company’s revenue from operations stood at Rs. 1,508 crores in Q1 FY25, rising by 17.4 percent YoY from Rs. 1,284 crores in Q1 FY24, while the after-tax profit grew by 41 percent to Rs. 812 crores from Rs. 576 crores, during the same period.
The stock has a P/E ratio of 6.1, compared to the industry’s P/E ratio of 21.8, indicating that the stock is trading at a lower price or in other words, the stock is undervalued. It has also reported a low PEG (Price/Earnings-to-Growth) ratio of 0.03.
The company witnessed a net profit margin of 49.74 percent in FY24 increasing from 45.25 percent in FY23 and an operating margin of 56.3 percent rising from 50.89 percent, over the same period.
The stock has delivered positive returns of nearly 42.5 percent in the last one year, and around 24.7 percent of positive returns year-to-date.
Great Eastern Shipping Company Limited is a major player in the Indian Shipping and Oil drilling services industry.
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Written by Shivani Singh
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