Impact of PE increase or decrease on Share price: Asian Paints
We use this matrix to assess the price contribution of EPS growth and PE growth. The chart shows that EPS growth has contributed meaningfully to share price increase across the 3 periods. Over 1 year duration, Asian Paints’ share price has increased by Rs 874. EPS increase contributed Rs 1118 while PE ratio fell taking away Rs 244 from the Price. Clearly, although Asian Paints has a very high PE of 80 times, its share price has increased due to strong increase in its EPS.
How we compute this - The formulae applied for computing EPS contribution to price is Old PE * (New TTM EPS - Old TTM EPS). PE contribution is actual price change - EPS contribution.
The computation is available for 3 periods:
1) From 1 day prior to most recent result announcement date to Current date. This is to capture the impact of most recent EPS announcement.
2) From 1 year back to current date
3) From 3 years back to current date
In companies where PE is not available as EPS was negative in the period, EV/EBITDA is shown.