How to Avoid Loss and Earn Consistently in the Stock Market: An Easy-To-Understand and Practical Guide for Every Investor

by Prasenjit Paul

With the average earnings growth rate of 38%, PEG ratio will remain below 0.5. PEG = P.E/ Average earnings growth rate PEG = 19/38 =0.5 So, our first consideration of undervaluation will perfectly hold anywhere below the P.E of 19. Don’t take investment decision based on only one criterion. Now, considering the historical P.E band of 6-22, average historical P.E comes at 14. It will translate the followings – 20%-40% discount than average – P.E band 8-11 (Best investment opportunity) Near average – P.E band 12-17 (Mediocre investment opportunity) Upper range – P.E band 17-22 ( Don’t make fresh investment. You can sell your existing holdings) More than 50% discount than average – P.E band 6-8 (Requires serious attention) So, as per the formula, the stock will offer the best investment opportunity in the P.E band of 8 to 11. From 2010-2014, Yes Bank was found trading in this valuation zone twice –during December 2011 and during August 2013. During December- 2011 and early January-2012 P.E was hovering around 10 and the stock price was around ₹240. As per the valuation method, this is a great investment opportunity. No wonder, by December 2012 the stock price generated around 95% return (quoted around ₹470). At the price of ₹470, P.E ratio was around 18 i.e. upper band of the average. Thus, indicating Exit/Profit booking signal. Yes Bank Valuation analysis with entry and exit point Average P.E 14, Attractive Buy Zone – P.E 8-11 Dec,2011 Dec,2012 Stock Return Sensex return