For DIY investors seeking value and growth from their investments in the local stock market, using the price-to-earnings (P/E) ratio is one of the most useful tools in their investing toolbox to select stocks.
The P/E ratio compares the share price of a company listed on the Johannesburg Stock Exchange (JSE) to its earnings per share (EPS). This figure shows how much investors are willing to pay for each unit of profit.
Using P/E ratios to select stocks
This simple yet powerful metric helps assess whether a stock is undervalued, overvalued, or fairly priced.
- A high P/E ratio alongside a reported loss (a high negative P/E ratio) might signal a company that is generating heavy losses compared to its current valuation.
- A high P/E ratio alongside positive earnings may signal strong growth potential if the market expects future earnings to surge.
- A low P/E ratio alongside positive earnings could reveal a company that is generating high earnings compared to its current valuation and might be undervalued.
- A low P/E ratio alongside a reported loss (a low negative P/E ratio) could reflect investor concerns about the company’s future.
That’s why context matters. It’s critical to compare a stock’s P/E to industry peers, benchmark indices, and its own historical ratios for a clearer picture.
When it comes to selecting only the top P/E stocks, this strategy can offer outsized returns if growth materialises, but it’s also a higher-risk strategy.
Types of P/E ratios
Investors also need to distinguish between trailing P/E (based on past earnings) and forward P/E (based on future projections) when evaluating investments, as each offers unique insights.
While the P/E ratio isn’t a crystal ball, by selecting local stocks by applying a P/E lens to your evaluation process, balanced for growth and risk, self-directed investors can boost long-term investment success, especially when used alongside other indicators.
While a stock’s P/E ratio analysis isn’t the be-all and end-all of the stock selection process for DIY investors, it’s a valuable piece of the puzzle for anyone serious about making smarter, more informed stock picks.
SA’s top performers
While a company’s P/E ratio varies based on prevailing market conditions and the impact that has on its stock price and earnings, numerous companies stand out when measured against this metric.
Some of the JSE-listed Top 40 stocks available via the Clarity, by Investec platform, ranked according to P/E ratio, include (as of July 2025):
Top 5 low positive P/E ratios:
- KAP Limited (KAP-JSE) 4.62x
- Sappi (SAP-JSE) 5.33x
- Fortress REIT (FFB-JSE) 5.55x
- Exxaro Resources (EXX-JSE) 5.61x
- Reinet Investments (RNI-JSE) 6.05x
Top 5 high positive P/E ratios:
- Prosus (PRX-JSE) 21.52x
- Naspers (NPN-JSE) 19.98x
- Mr Price Group (MRP-JSE) 14.56x
- Remgro Limited (REM-JSE) 13.8x
- PPC (PPC-JSE) 12.55x
