# Portfolio PE

PE ratio of a company is the ratio of the share price of a company to its earnings per share. PE ratio allows one to infer how much investors are willing to pay for one Rupee of the company’s profit. More about the ratio can be read here.

Portfolio’s can also have PE ratio. Total net worth is the price of the portfolio or the numerator part of the PE ratio. Cumulative earnings of all the companies is the denominator part. You can read more about company’s financial statements and earnings here.

StockNumber of shares held (A)Current Price (B)Net Worth (C = A * B)Earnings Per Share (D)Total Earnings (E = D * A)
SBI33158.85,238.8023.50774.20
PNB12271.08,662.0018.002,198.40
BOB53131.96,990.7017.30918.50
BOI8583.307,080.5026.302,232.10
ALBK58443.4025,316.4011.106,453.20
Total53,288.4012,576.40
PE RatioPE = C / D4.2

One way of interpreting a portfolio PE is by comparing the same with the benchmark PE.

If a portfolio PE is higher than the benchmark PE, then one can interpret the portfolio as being overvalued when compared to the benchmark

One can also compare the current PE of the portfolio with its historical value to understand whether the portfolio is undervalued or overvalued.

If a portfolio has more companies growing at a fast pace, then PE ratio of the portfolio can be high as these companies usually are expensive compared to the rest of the market. If the portfolio companies have had weak total earnings, the total PE ratio could be inflated because of low denominator. Hence one has to closely inspect the portfolio companies before drawing any conclusion about portfolio PE ratio.