Small Nuances, Big Gains: Is the P/E ratio of 164 of Zomato justified? Learn how to value a business before buying a stock

One of the most misused and misunderstood ratios is the price to earnings ratio, commonly referred to as the PE ratio. Consider this: In 2014, a company whose stock price was Rs. 473, had a PE ratio of 44. Cut to December 2024. The stock price is Rs. 2,100, after touching a high of Rs. 2,700 in September, and the PE ratio is 62. Going by conventional wisdom, you would have not bought the stock in 2014. But you would then have missed creating wealth. Now valuation is a combination of numbers and narratives.