June 8, 2022 | Investopaper
The Price-to-earnings ratio or P/E ratio is one of the most commonly used tools for determining relative valuation of stocks. It helps to calculate whether the stock of a company is undervalued or overvalued.
P/E ratio basically helps to value a company in relation to its earnings. Lower P/E ratio suggests that the company is available at a cheaper rate compared to its earnings while a high P/E may be associated with strong goodwill and image of the company. Lower P/E ratio doesn’t always mean that the stock is undervalued. It may also reflect the poor future performance of the company or the distrust of the investors towards the company’s operation.
In order to calculate P/E ratio, we must divide the current stock price by the earnings per share (EPS). Thus the formula for P/E ratio is.
P/E Ratio= Market Price per share/ Earnings per share
So, we need to know the Earnings Per Share (EPS) and current market price of the stock for the calculation of Price-Earnings Ratio. We can compute the Earnings Per Share (EPS) by dividing the net profit by the total number of shares.
P/E Ratio Of 27 Commercial Banks
The table below presents the P/E ratio of 27 Commercial Banks Of Nepal:
|Rank||Commercial Banks||Market Price Per Share (Rs.)||Earnings Per Share (EPS)||P/E Ratio|
|4||Global IME Bank||259.2||20.88||12.41|
|9||Prime Commercial Bank||265||19.45||13.62|
|10||Century Commercial Bank||196.9||14.17||13.90|
|16||Nepal Investment Bank||274.1||18.04||15.19|
|17||Nepal SBI Bank||293.7||17.64||16.65|
|18||NIC Asia Bank||708.9||41.94||16.90|
|19||Standard Chartered Bank||401||23.03||17.41|
|20||Agricultural Development Bank||328.9||16.79||19.59|
|21||Bank Of Kathmandu||215.5||10.93||19.72|
|25||Nepal Bangladesh Bank *||399||14.69||27.16|
|27||Rastriya Banijya Bank||–||25.03||0.00|
The Earnings Per Share (EPS) is based on the unaudited third quarterly report of the fiscal year 2078/79. After the audit, the numbers may vary.
The Share price of the banks is of Jestha 24, 2079 BS [June 7, 2022]. At current, the share prices of the respective banks may vary.
* Nepal Bangladesh Bank is in acquisition agreement with Nabil Bank. Hence, the shares of NBB are not traded currently. The above share price is before the agreement.
As shown in the table, NIC Asia Bank (NICA) has the highest EPS of Rs. 49.44. Similarly, Rastriya Banijya Bank (RBB) has an EPS of Rs. 25.03. However, it is not listed in Nepal Stock Exchange (NEPSE). So, we cannot calculate the P/E ratio of RBB.
NCC Bank has the lowest P/E ratio of 11.40 while Nabil Bank has the highest P/E ratio of 34.09.
The average P/E ratio of the commercial banks (as of Jestha 24, 2079 BS) stood at 16.04
See the P/E ratio of the banks and decide which bank stock would you like to include in the portfolio. Feel free to share your views in the comment section.