Why is Tata steel trading at so low P/E? Currently the P/E ratio of Tata steel, at its current price of Rs. 523 is only 4. Let us compare it with other steel manufacturing companies. At its current price of Rs. 140, the P/E ratio of SAIL is about 8.4. So why is P/E ratio of tata steel so low? Let us look at another international company, Arcelor Mittal, currently trading at a P/E of 6.8.
update: For latest P/E ratio of Tata Steel go to finance.google.com
One thing that comes to my mind is debt. While evaluating a company, one has to not only look at P/E and growth, but also the debt of that company. Here is a table comparing P/E ratios and debt equity ratios of Tata Steel, Sail and Arcelor Mittal.
|Company||P/E ratio||Debt Equity Ratio|
But is the above table enough to explain the low P/E ratio of Tata steel? Especially given the fact that the net consolidated profits of Tata steel have grown by a whopping 200% last year? Yes, agreed, Steel is required everywhere. So the slowdown is going to take a big toll on the steel sector. I am going to pounce on Tata Steel once i see any "convincing" signs of improvement in global economy.