NSE Symbol: SBIN | BSE Code: 500112
SBI is the largest public-sector lending bank. The stock prices of SBI are booming lately, but the bank keeps incurring losses. The reason for the ever-increasing stock prices and a large number of Non-Performing Assets(NPS) which result in a high level of loss is bad loans. The Chairman of State Bank of India, Rajnish Kumar targets the SBI share price to go up by 2020 and plans on reducing the amount of NPA down to 6% by then. This optimistic view also comes from the fact that the SBI share price has been shooting up irrespective of the bottlenecks faced by the bank.
PE or Price-Earnings Ratio is one of the widely used factors for screening the stocks. If the PE ratio of a bank is high, the investors will anticipate higher returns and hence end up pitching more into the stock. PE ratio is the money that the investors are willing to pay for each rupee of earning with the company. High PE ratio indicates that the investors anticipate positive earnings from the stock. However, a high PE ratio doesn't necessarily indicate that the earnings from the particular stock will be high. A high PE ratio can also be a result of over-valuation of the stock.
SBI's average PE Ratio in 2016 was 14.4. But it plummeted to 761.8 in 2017 and finally, the average PE ratio crashed down to -56.0 at the end of March 2018. The radical trend in PE Ratio shows that the SBI stocks are highly volatile in terms of market anticipation.
A negative PE ratio indicates that the company has negative earnings.
Along with a negative PE ratio, SBI has large NPA which keeps multiplying by the year. This could be attributed to the poor micro and macro management of the bank. High Non-Performing Assets could reduce investors faith in the company; this could lead to poor performance of the stocks.
There's been a drastic increase in the total provisions of SBI. Even if the company manages to incur higher net profits, large provisions would always demotivate the investors.
If we follow the trend from the past five years, SBI stocks haven't been quite impressive compared to private banks. There are chances that SBI stock would crash dramatically in the coming years. So, it's better to invest in private banks' stocks with have a better PE ratio and relatively lower NPA.
State Bank of India is a financial institution known for an extensive range of financial products such as home loans, student loans, life insurance etc. It is a public-sector bank of India and owned by Government of India. It's spread across the globe with 190 offices in 36 countries. In 2016, SBI was a part of the Fortune 500 list. About one-fourth of the loans and deposits are held by the State Bank of India.