Have you seen Zomato’s (Now Eternal) PE ratio and thought, "300+? Yeh kya magic hai?" While other big companies have a PE of just 20-30, why is Zomato so different?In this article, we will explain the meaning of PE ratio, why Zomato’s PE ratio is very high, and what it tells us as investors. Don’t worry – we’ll keep it simple and clear.
Many beginners think a high PE means the stock is overpriced. But that’s not always true. Without understanding the logic, you may take wrong decisions.Zomato's PE is high because of very low earnings and high expectations for future growth – but investing in such stocks needs careful thinking.
What is PE Ratio?
PE Ratio = Price per Share ÷ Earnings per Share (EPS)
PE tells us how much investors are paying for ₹1 of the company's profit.
Example: If a company earns ₹1 per share and its price is ₹30, then PE = 30.
High PE means the stock is expensive compared to its profit. Low PE means it may be undervalued (but not always).
Important Note: PE is not the only thing to look at. But it helps understand how the market values a company.
Why Zomato’s PE Ratio is So High?
Zomato is not making regular profits. Its earnings (EPS) are very low or sometimes negative. But its share price is still high because of future hopes.
When EPS is very small, the PE becomes very large.
Example:
- If price is ₹60 and earnings per share is only ₹0.20, then PE = 300.
- It does not mean Zomato is bad. It means profit is still low.
Why Investors Are Paying: Investors believe Zomato will perform well in future. They are ready to pay a high price today based on expectations.
Future Expectations – Based on What?
- Investors study revenue growth (Zomato's sales grew from ₹466 Cr in 2018 to ₹17,972 Cr TTM). Source
- They look at improving profit trends (Zomato turned profitable in FY24 with ₹663 Cr profit).
- They examine management commentary, expansion into new businesses (like Blinkit), and analyst projections.
- Analysts use DCF (Discounted Cash Flow) models and future EPS estimates to justify valuations.
Peer Comparison:
- Zomato PE: 307.76 | Sales Growth 5 Yrs: 55.97% | Profit Growth 5 Yrs: 16.04%
- Amazon: Had high PE for years due to reinvestment strategy.
- Paytm & Nykaa: Faced similar high PE situations due to rapid growth focus.
Zomato’s PE is high today because the company has just entered profit zone, and future profits are expected to rise based on revenue expansion and operational leverage.
Is High PE Always Bad?
No, not always.
- High PE can mean future growth is expected.
- But it also means you’re taking more risk.
Smart Investing Thought:
- If the company grows as expected, price may go up even more.
- But if it fails to deliver, stock may crash.
Zomato Case:
- If Zomato continues profitable growth, PE will reduce naturally.
- But if growth stalls, investors may lose patience.
Beginner Mistake: Some new investors see high PE and panic or blindly avoid. But you should check growth story, revenue trend, and future plans.
Also Look At These Metrics:
- Revenue Growth: Strong indicator of business expansion
- Cash Flow: Is the business generating real cash?
- Debt to Equity: Zomato has low debt (0.05) – a good sign
- Market Share & Brand Value: Strong position in food delivery segment
- Receivable Days: Efficient collections (Zomato has 23.92)
- Interest Coverage: Healthy at 7.45, shows ability to manage borrowings
Should Beginners Invest in High PE Stocks Like Zomato?
Tips for Beginners:
- Don’t look at PE alone. Look at overall business.
- See if the company is growing in revenue.
- Check management quality and market share.
- If the company is making loss, understand why.
- Avoid FOMO (fear of missing out).
Zomato Advice:
- It’s okay to study Zomato, but don’t invest without full research.
- Risk is high, reward may also be high – invest accordingly.
- Better to invest in parts (SIP style) if you're unsure.
Trust Rule: If you don’t understand a company, better to skip than to regret later.
Addressing Misconceptions
Misconception: High PE means stock is overpriced.
Truth: Not always. Sometimes PE is high because company is not profitable yet, but investors see big potential.
Another Misconception: Low PE is always safe.
Truth: Some low PE companies are actually risky. Maybe their profits are falling, or future is weak.
Balanced View: PE is just a tool. You need to use other tools like revenue growth, profit trend, market share, debt levels, etc.
Conclusion
Summary:
- PE Ratio = Price / Earnings
- Zomato’s PE is high because of very low earnings
- Market is pricing in future growth
- High PE stocks carry more risk, especially for beginners
Zomato is not bad, but you must understand its business before investing.Share market mein jaldi paisa kamaane ki soch mein log galti kar dete hain. Knowledge ke saath invest karo, safe raho.
Have questions about PE ratio or Zomato? Leave a comment below. Share this article with friends who are new to investing.
Disclaimer:
This article is for educational purposes only. It is not investment advice or a stock recommendation. Please do your own research or consult a financial advisor before making any investment decisions. The author is not responsible for any financial loss arising from decisions taken based on this article.Citations & Sources:
- Zomato Financials – Screener
- Investopedia: What is PE Ratio
- Zomato Q3 Results – Screener
- Zomato Investors Relation
