P/E ratio !!
👇👇

A P/E ratio of 15 can also be expensive in many sectors and a P/E ratio of 30 can be a deal in many places.
How to understand the same and ride on the ones where good magnitude move scope is there.

Why a sector gets Low P/E and stays at lower P/E ?
Markets gives higher P/E multiples to those sectors where growth visibility is good. Meaning where we can see the sector or company doing good and growing for several years. Such sector may get 30,40 or even 50+ P/E multiples.
So, it means the ones getting lower P/E are the ones where growth is not visible, right ?
Yes !!
And also sectors where there is good earning volatility, means one good year due to Raw material and final goods prices and then again they normalize from next year.
So, when you study a business or stock, give a though on it, as in what type business this can be.
One more is over capacity in the sector, this creates pricing pressure and then price erosion. This is where Total addressable market gets important.
So, if you are in a stock with such characteristic, then a low P/E can be a trap.

How to trade opportunities in such sectors ?
Check out on what P/E normally there are trading in ?
Then based on the current nos. and growth , what P/E they may trade in 6 months to 1 years period. If there is a gap in that , then there can be a scope to trade such sectors.
🌟 Also always understand what is going in the sector, sometimes some tailwinds may start to appear in a sector which can put the sector under earnings visibility for long years making them re rate to higher P/E multiples.
Example - Happened in Defense, Energy, railway sector in last 2 years.

🌟 Case 2
Sectors trade at Higher P/E
You might have witnessed many sectors like FMCG etc keep trading at higher multiples.
Because such sectors have the potential to keep growing year on year. Some places growth may subside and market may de rate them but where growth remains stable they enjoy higher P/E.
How such names have to tracked with keeping that in mind.

🌟 Now lets understand How and what to trade ?
👉 A Low P/E multiple sector where growth is not visible for long duration with other risks , means High P/E might not be possible. Then trade them in that P/E range. When nos. starts to pick up , calculate forward P/E and then see is there is a gap or not. They may be traded for that window only.
👉 A Sector where P/E was low but now growth is visible , meaning possibility of re rating. Here some companies will get re rated to higher multiples with growth in nos. So, these may give you fruits over time. So, we can't predict the gap here and might have to ride them.
👉A sector already trading at Higher P/E multiples lets say 45-60. Now here you have check the future growth seriously. If there is a scope of good growth over next year and so on. Then they still might do fine as with earnings there P/E will starts to normalize. But companies where growth starts to look dicey becomes risky as they already trading at higher multiples and now if the earnings fall, price may fall. Even De rating may happen.

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Disclaimer: Everything shared above is for learning purpose only and nothing is in any form any advice.