Open any NEPSE discussion and someone will eventually ask "what's the P/E?" It's the number people reach for when they want to argue a stock is cheap or expensive. The math behind it is simple. The judgement around it is where most people go wrong.
What is P/E?
P/E stands for Price-to-Earnings. It tells you how much you're paying for every rupee a company earns.
A real NEPSE example
Take NABIL Bank. As of its Q3 FY 2082/83 report (published April 2026), NABIL's annualized EPS was around Rs. 33. Suppose the share is trading at Rs. 600.
This means you're paying roughly Rs. 18 for every Rs. 1 of current annual earnings. Put another way: if NABIL's earnings stayed flat from here, it would take about 18 years of profits to "earn back" what you paid per share. That's not a literal payback period — companies reinvest profits, pay dividends, and earnings change — but it's the intuition the ratio captures.
A quick sanity check on the same number: NABIL's reported book value per share at the time was around Rs. 243, so at Rs. 600 you'd also be paying a P/B of about 2.5x. P/E and P/B answer different questions — earnings power vs. accounting net worth — and you usually want to glance at both.
High vs Low P/E — what does it mean?
| P/E Level | What it might suggest |
|---|---|
| High P/E (e.g., 30+) | Market expects strong future growth — you're paying a premium for expected earnings |
| Low P/E (e.g., below 10) | Market is skeptical about the company — or the stock might be undervalued |
| Negative P/E | The company is losing money — earnings are negative |
But it's not that simple
A high P/E doesn't always mean "overpriced," and a low P/E doesn't always mean "a bargain." Context matters:
- Growth companies often have high P/E because investors believe earnings will grow significantly
- Banking stocks in NEPSE tend to have lower P/E (roughly 10-18) — that's normal for the sector
- Cyclical companies might have low P/E at the peak of a cycle (when earnings are high but about to fall)
How to use P/E on NEPSE
1. Compare within the same sector
Don't compare NABIL Bank (P/E 15) with a hydropower company (P/E 25). Different sectors have different "normal" P/E ranges. Always compare apples to apples.
- Commercial banks: sector median sits around 14-16x, with most banks in a 10-20 range. As of 2026, commercial banking is the lowest-P/E sector on NEPSE — the broader index P/E has been running well above that.
- Hydropower: P/E of 15-30 is common, though figures get distorted for construction-stage companies that earn little or nothing yet.
- Insurance: P/E varies widely, often 12-25. Life and non-life behave differently — don't lump them together.
2. Look at the trend
Is the P/E rising or falling over time?
- Rising P/E with rising earnings → market is getting more optimistic (could be good or mean it's getting expensive)
- Falling P/E with flat earnings → market is losing confidence
3. Combine with other metrics
P/E alone is not enough. Use it alongside:
- Book Value — is the stock trading above or below what its assets are worth?
- Dividend Yield — is the company sharing profits with shareholders?
- EPS growth — are earnings actually growing, or is the P/E based on hope?
Common mistakes beginners make
- "Low P/E = cheap, must buy" — Not always. A low P/E might mean the company has real problems.
- Ignoring negative earnings — If EPS is negative, P/E becomes meaningless. Don't try to interpret it.
- Comparing across sectors — As we said, different sectors have different normal ranges.
- Using only trailing P/E — Trailing P/E uses past earnings. Also check forward P/E (based on expected future earnings) if available.
Quick reference
| Metric | Formula | What it tells you |
|---|---|---|
| P/E Ratio | Price ÷ EPS | How much you pay per rupee of earnings |
| EPS | Net Profit ÷ Total Shares | How much profit each share earns |
| Forward P/E | Price ÷ Expected future EPS | What you're paying for expected future earnings |
In the next article we'll walk through three more terms you'll see constantly on NEPSE: book close, book value, and BPS.