Which are the most expensive stocks in India right now?
As per Equitymaster's Stock Screener, here is a list of the most expensive stocks in India right now...
These companies have been ranked as per their PE (Price to Earnings) ratio. Generally, speaking, high PE stocks are considered to be expensive. And low PE stocks are said to be cheap.
Of course, there are other parameters you should take into account before forming a hard opinion on the stock valuation.
How do you know if a stock is expensive?
One of the quickest ways to gauge whether a stock is expensive is to compare its valuation ratios to the rest of its industry or its historical average. If it is trading above these numbers, it is expensive.
What are the other important parameters to consider when looking at valuations?
One popular ratio, other than PE, is the Price to Book Value ratio (P/BV). This is particularly useful when evaluating banks and financial companies. You can access a list of the most attractive stocks based on P/BV here...
EV to EBITDA (Enterprise Value to Earnings before interest, taxes, depreciation and amortization) ratio is also another popular ratio used in the valuation of service companies or companies that are yet to turn profitable.
Enterprise value is a company's total value. All ownership interests and asset claims from both debt and equity are included.
The thumb rule is that a company with lower EV/EBITDA is more attractive.
Should you buy stocks at expensive valuations?
An expensive stock may be a good investment if the company has a strong future outlook and is expected to grow earnings rapidly.
However, usually it is not wise to buy it since it has a valuation that is not justified by its earnings outlook. They also don't offer much margin of safety as investors overpay for them.
Do expensive stocks go up in value?
Sometimes. Growth stocks are a great example of expensive stocks that often, but not always, go up in value.
These stocks generally appear expensive because of their high price-to-earnings (P/E) ratios. Investors expect to earn substantial capital gains as a result of strong growth in the underlying company.
However, in most cases, the expensive valuation acts as a drag on returns. So, there is a period of low returns until a fair valuation is attained.