In simple terms, a good P/E ratio is lower than the average P/E ratio, which is between 20–25.
As far as Nifty is concerned, it has traded in a PE range of 10 to 30 historically. Average PE of Nifty in the last 20 years was around 20. * So PEs below 20 may provide good investment opportunities; lower the PE below 20, more attractive the investment potential.
Hence PB ratio can be used as valuation tool for banking sector. Normally PB ratio should be closer to 1 or near to industry average. Some companies will be having high PB ratio for a bank with significant growth opportunities due to technology, location and desirable merger.
Overall, however, a D/E ratio of 1.5 or lower is considered desirable, and a ratio higher than 2 is considered less favorable. D/E ratios vary significantly between industries, so investors should compare the ratios of similar companies in the same industry.
Obviously, a higher current ratio is better for the business. A good current ratio is between 1.2 to 2, which means that the business has 2 times more current assets than liabilities to covers its debts.
A Texas Ratio of 100% means that a bank's troubled assets are equal to its tangible common equity and reserves. This indicates that the bank is at high risk of failure. A Texas Ratio below 50% is generally considered to be a good sign, while a ratio above 100% is cause for concern.
The big four major bank stocks trade on average at 21 times their one-year forward earnings, which Mott says is a “world record”. Commonwealth Bank, the perennially overvalued retail darling, trades on a price/earnings multiple of 26 times, which makes it the most expensive bank in developed market history.
Buffett's Strategy
Warren Buffett, the greatest value investor of this century, now tends to buy stocks with a P/B ratio of around 1.3.
The optimal D/E ratio varies by industry, but it should not be above a level of 2.0. A D/E ratio of 2 indicates the company derives two-thirds of its capital financing from debt and one-third from shareholder equity.
Apple (AAPL) PE Ratio (TTM) : 38.55 (As of Jan. 14, 2025)
According to Tesla's latest financial reports and stock price the company's current price-to-earnings ratio (TTM) is 118.273. At the end of 2022 the company had a P/E ratio of 30.6.
Again, these ratios are often used in a comparative sense, so what's good or bad depends on what you're comparing it against. To give you some sense of what the average for the market is, though, many value investors would refer to 20 to 25 as the average P/E ratio range.
According to JPMorgan Chase's latest financial reports and stock price the company's current price-to-earnings ratio (TTM) is 14.472. At the end of 2022 the company had a P/E ratio of 11.1.
As we suspected, our examination of Berkshire Hathaway's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E.
High PE can indicate high future growth expectations; low PE may suggest undervaluation. Low PB can suggest undervaluation, high PB may signal overvaluation or growth expectations. Can be influenced by non-operational factors and market sentiment. More stable, based on tangible book value of the company.
Globally, according to McKinsey Panorama, banking 1. ROEs have reached their highest point since the onset of the global financial crisis, roughly 12 percent in 2023, significantly outperforming recent historical averages, including the roughly 9 percent average the industry experienced in 2013–20.
This stance hints at one thing: Buffett sees the market as significantly overvalued. Much of this cash isn't being reinvested in the stock market but rather parked in short-term U.S. Treasury bills.
Overall, BAC ranks 1st on our list of the 10 best undervalued stocks to buy right now. While we acknowledge the potential of BAC as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe.
Tier 1 capital is a bank's core capital and includes disclosed reserves—that appear on the bank's financial statements—and equity capital. This money is the funds a bank uses to function on a regular basis and forms the basis of a financial institution's strength.
Common ratios to analyze banks include the price-to-earnings (P/E) ratio, the price-to-book (P/B) ratio, the efficiency ratio, the loan-to-deposit ratio (LDR), and capital ratios.