3 most expensive stocks in India based on Peter Lynch’s favourite formula. Do you own them?

By Ekta Sonecha Desai

Mentioning Peter Lynch to investors is like whispering a secret code to a treasure chest—mysterious, compelling, and full of promise. For investors, Lynch’s strategies, particularly the PEG ratio, hold the same allure, offering a deeper understanding of what makes a stock value for money — or overpriced.

Expensive stocks often steal the spotlight in the investment world, sparking debates about whether their price is justified. While their high valuations can be daunting, they are sometimes backed by strong growth potential. Other times, they are simply overvalued and prone to big declines in stock price.

The ‘PEG ratio’—short for Price/Earnings (P/E) to Growth ratio—is a valuation metric that goes beyond the surface. Unlike the standalone P/E ratio, which can paint high-growth companies as overvalued, the PEG ratio factors in future growth, offering a clearer picture.

First popularized by Peter Lynch in One Up on Wall Street, this formula has become a cornerstone for analyzing stocks. According to Lynch, a PEG ratio of 1 indicates a fairly valued company, while ratios below 1 suggest potential bargains, and those above 1 may signal overvaluation.

1. Sheela Foam

Sheela Foam is a leading player in India’s mattress and foam products industry and a leader in Polyurethane (PU) Foam. It has a nationwide presence in manufacturing PU Foam with a track record, since 1971.

Sheela Foam is the most expensive company according to PEG ratio. Its currently trading at a PEG ratio of 98.4 times. It is trading at a P/E ratio of 102 times. This is a very high ratio even when its share price has tumbled 18.2% in the last one year.

Now, whether this is justified only time will tell. For now, let’s dig into the company’s business and financials.

The company’s financial performance over the last five years reflects rangebound sales growth, with revenue increasing from Rs 2,121 crore in 2020 to Rs 2,982 crore in 2024, showing a CAGR of 8.9%. This was driven by volume growth and geographic expansion.

Sheela Foam’s high stock price reflects its strong market position, trusted brands, and growth potential. Its 30% market share and leadership in branded mattresses drives investor confidence.

On the other hand, operating profit showed some fluctuations, peaking at Rs 364 crore in 2021 before settling at Rs 304 crore in 2024. Changes in material costs and integration expenses impacted margins during this period.

Net profit followed a similar trajectory, peaking at Rs 240 crore in 2021 but declining to Rs 184 crore in 2024, reflecting a negative growth. Increased marketing and acquisition-related costs contributed to this trend.

It is pertinent to note that decreasing PAT, with no change in share price, pushes the PEG ratio higher.

Sheela Foam’s financial performance summary (2020-24)

Particulars	FY20	FY21	FY22	FY23	FY24
Sales (Rs in crore)	2,121	2,437	2,866	2,873	2,982
Operating Profit (Rs in crore)	300	364	315	298	304
Net Profit (Rs in crore)	194	240	219	201	184

Source: Screener.in

2. Hindustan Zinc

Established in 1966, Hindustan Zinc is a world leader in the Zinc, Lead, and Silver industry. The company is the world’s second-largest integrated zinc producer and the third-largest silver producer globally, with an annual capacity of 800 MT.

It has a strong 75% market share in India’s growing zinc market and is headquartered in Zinc City, Udaipur. Its wide operations include Zinc-Lead mines and smelting complexes across Rajasthan.

Hindustan Zinc’s share price surged by 51.3% over the past year, positioning it as the second most expensive stock in India based on the PEG ratio. Currently, the company’s PEG ratio stands at 93.9, while its P/E ratio is 22.5.

The real question is whether these numbers reflect the company’s true potential. Let’s dig into Hindustan Zinc’s business and financial performance to find some answers.

Hindustan Zinc’s high stock price reflects its dominance in the zinc, lead, and silver markets, with a dominant share in India’s zinc segment. Investors value its cost leadership, growth potential through capacity expansions, and focus on innovation.

Hindustan Zinc‘s financial performance over the past five years highlights a mixed trajectory. Sales rose from Rs 18,561 crore in 2020 to Rs 28,934 crore in 2024, achieving a CAGR of 11.7%. This growth was primarily driven by record-breaking production levels in zinc and silver.

However, external factors such as global economic uncertainty and fluctuating zinc prices limited the potential for further acceleration in 2024.

Operating profit saw steady growth initially, climbing from Rs 8,870 crore in 2020 to Rs 17,521 crore in 2023, before falling to Rs 13,681 crore in 2024. The drop in 2024 was due to rising energy costs and increased spending on operational upgrades.

Net profit followed a similar pattern, increasing from Rs 6,805 crore in 2020 to Rs 10,520 crore in 2023, before decreasing to Rs 7,787 crore in 2024. Considering the fluctuations, in the past five years its net profit grew by 2.7% CAGR. The decline in the most recent year can be attributed to lower profit margins driven by global price corrections and higher input costs.

Hindustan Zinc’s financial performance summary (2020-24)

Particulars	FY20	FY21	FY22	FY23	FY24
Sales (Rs in crore)	18,561	22,629	29,440	34,098	28,934
Operating Profit (Rs in crore)	8,870	11,672	16,226	17,521	13,681
Net Profit (Rs in crore)	6,805	7,980	9,630	10,520	7,787

Source: Screener.in

3. Devyani International

Devyani International is the largest franchisee of Yum Brands in India and is among the largest operators of chain quick service restaurants (QSR) in India. In addition, the company is a franchisee for the Costa Coffee brand and stores in India.

Devyani International is the third most expensive stock in India based on the PEG ratio. It is currently trading at a PEG ratio of 71 times and a P/E ratio of 1,454 times. Despite a modest 3.5% rise in its share price over the past year, these ratios reflect a significant premium.

It remains to be seen if such a premium is warranted. Let’s shift our focus to Devyani International’s financial performance to better understand its foundation.

Investors are probably paying a premium for Devyani International to its strategic presence in the fast-growing QSR sector, operational efficiency, and expanding geographic footprint.

The financial performance of the company over the last five years has shown significant changes. Sales increased from Rs 1,516 crore in 2020 to Rs 3,556 crore in 2024, registering a CAGR of 23.8%. This growth was driven by new store openings and increasing consumer demand in the Quick Service Restaurant (QSR) segment.

Operating profit grew from Rs 262 crore in 2020 to Rs 654 crore in 2024. This growth was driven by higher revenue from new store openings, an increased focus on premium menu offerings, and better supply chain management.

Conclusion

The PEG ratio is an essential tool for looking at the valuations of stocks. It balances price with growth potential, as reflected above in the companies.

However, these high valuations reveal investor optimism regarding growth, market leadership, and future profitability.

Now, whether this is justified only time will tell.

The PEG ratio, though valuable, is just one piece of a larger puzzle. High ratios may sometimes be justified by reasons like great growth potential or market dominance, but they may also be on account of say misplaced optimism.

Investors need to take a rational and holistic view when studying stocks.

Disclaimer

Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.

Ekta Sonecha Desai has a passion for writing and a deep interest in the equity markets. Combined with an analytical approach, she likes to deep deep into the world of companies, studying their performance, and uncovering insights that bring value to her readers.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.