A low price-to-earnings (P/E) multiple can easily catch an investor’s eye. But a cheap-looking stock isn’t necessarily a bargain. Sometimes, the market is pricing in slower growth or weaker profits. In other cases, earnings are rising, yet the valuation remains relatively modest. The challenge is figuring out which is which.
State Bank of India (SBI), Hindustan Zinc and Mahindra & Mahindra (M&M) offer three different perspectives on this question. One is a banking giant, another is a commodity producer, and the third has a strong presence in SUVs and tractors. Each has identifiable growth drivers, but the risks are quite different.
Here’s what the numbers tell us, and what investors should look at beyond the headline P/E.
India's largest public-sector bank has a considerable size advantage. SBI's branch network, deposit franchise and presence across retail and corporate lending give it access to a wide pool of customers.
The next leg of growth will depend partly on how effectively it converts rising credit demand into profits. A growing loan book helps, but the cost of funding those loans matters just as much.