Step 6 of 8

Valuation & Pricing

Duniya ki sabse acchi company bhi agar aapne bahut mehenge valuation par kharid li, toh aapka return 0 ya negative ho sakta hai! Valuation decide karta hai ki aapko kharidne par kitna Margin of Safety mil raha hai.

~50 Stocks Step 5 ke baad
~20–25 Survive Fair price par
Margin of Safety Value Buying
Benjamin Graham ka Golden Rule: "Price is what you pay, Value is what you get." Hamesha check karein ki stock price uski intrinsic earnings power se kitne discount par mil rahi hai.
P/E Ratio (Price-to-Earnings)
Relative Valuation Multiplier
Step 6.1
1. Ye kya hai? (What is it?)

P/E Ratio = Current Share Price ÷ Annual Earnings Per Share (EPS)

Matlab: Company ke ₹1 ke profit ke liye aap market mein kitne rupaye dene ko taiyyar hain?
• Agar P/E = 20 hai, toh aap ₹1 ki annual earnings ke liye ₹20 pay kar rahe hain.

Sector Context zaruri hai: Fast-growing consumer/tech company ko 30-40 P/E mil sakta hai, jabki commodity ya utility company ko 10-12 P/E milta hai.

2. Asli Indian Example

D-Mart vs PSU Bank: D-Mart 80-100x P/E par trade karta tha kyunki market 25-30% consistent profit growth expect kar raha tha.

Doosri taraf, PSU banks 6-8x P/E par milte hain kyunki cyclicality aur NPA history rehti hai. Hamesha P/E ko Growth Rate ke saath compare karein (PEG Ratio)!

3. Screener mein kaise dekhein?
Screener.in Query:
Price to Earning < 40 AND Return on capital employed > 15
4. Ideal Range
P/E 15 – 25: Fair for Steady Quality P/E 25 – 35: Premium for High Growth P/E > 60: Extremely Priced in (High Risk)
PEG Ratio (P/E to Growth)
Growth-Adjusted Value Metric
Step 6.2
1. Ye kya hai? (What is it?)

PEG Ratio = P/E Ratio ÷ Expected EPS Growth Rate (%)

Legendary investor Peter Lynch ne ye rule banaya:
• PEG < 1.0: Undervalued relative to growth (Growth at a Reasonable Price — GARP).
• PEG = 1.0: Fairly valued.
• PEG > 2.0: Overpriced for the amount of growth being delivered.

4. Ideal Range
PEG < 1.0: Excellent Value Zone PEG 1.0 – 1.5: Fair Valuation PEG > 2.0: Expensive Growth Trap
Margin of Safety & Reverse DCF
Intrinsic Value Cushion
Step 6.3
1. Ye kya hai? (What is it?)

Margin of Safety = (Intrinsic Value − Current Price) ÷ Intrinsic Value × 100

Reverse DCF Technique: Future estimate lagane ke bajaye ye dekhein ki current share price ko justify karne ke liye company ko agle 10 saal kitni growth karni padegi? Agar market 45% CAGR price-in kar raha hai, toh probability bohot kam hai ki company us expectation ko meet kar sake!

4. Ideal Range
Margin of Safety > 25%: Strong Buy Cushion Margin of Safety 10% – 25%: Reasonable Entry Negative Margin of Safety: Overvalued — Wait for Dip
Step 6 Valuation Screener Query
Screener.in — Step 6 Valuation Master Query
Market Capitalization > 500 AND Debt to equity < 1 AND Price to Earning < 40 AND Return on capital employed > 15 AND Sales growth 5Years > 10 AND Free cash flow > 0