Is Purple Finance overvalued or undervalued?

Valuation Metrics Paint a Cautionary Picture

As of early December 2025, Purple Finance’s valuation grade shifted from "risky" to "very expensive," signalling heightened market expectations. The company’s price-to-earnings (PE) ratio stands at a negative figure, reflecting losses rather than profits, which complicates traditional valuation comparisons. A negative PE ratio of approximately -19.6 indicates that Purple Finance is currently unprofitable, a red flag for many investors.

Further, the enterprise value to EBITDA (EV/EBITDA) ratio is deeply negative, around -38.8, reinforcing the notion of operational challenges. The price-to-book (P/B) ratio, however, is 2.20, which is moderately elevated but not extreme in the NBFC sector context. This suggests the market values the company at more than twice its book value, despite its current earnings struggles.

Return on capital employed (ROCE) and return on equity (ROE) are both negative, at -5.39% and -11.25% respectively, indicating that Purple Finance is currently destroying shareholder value rather than creating it. These metrics highlight operational inefficiencies or adverse market conditions impacting profitability.

Peer Comparison Highlights Relative Overvaluation

When compared with peers in the NBFC and financial services sector, Purple Finance’s valuation appears stretched. While some peers like Bajaj Finance and Jio Financial also trade at high valuations, their positive earnings and growth prospects justify elevated multiples. For instance, Bajaj Finance sports a PE ratio near 35 and a positive EV/EBITDA of about 19.6, reflecting robust profitability and market confidence.

In contrast, Purple Finance’s negative earnings and deeply negative EV/EBITDA ratio set it apart unfavourably. Other companies in the sector, such as Life Insurance firms and HDFC Life Insurance, trade at more reasonable or fair valuations with positive earnings metrics, underscoring Purple Finance’s relative overvaluation despite its current share price.

Stock Price and Returns: A Mixed Performance

Purple Finance’s current share price hovers around ₹43.90, having risen modestly from the previous close of ₹43.22. The stock’s 52-week range is wide, with a high near ₹83.94 and a low of ₹33.00, indicating significant volatility over the past year. Despite a slight positive return over the past week and month, the year-to-date (YTD) return is deeply negative at nearly -35%, contrasting sharply with the Sensex’s positive 9.1% YTD gain.

This underperformance relative to the broader market and peers suggests investor scepticism about Purple Finance’s near-term prospects. The negative returns over one year and the absence of long-term return data further complicate the investment thesis.

Conclusion: Purple Finance Appears Overvalued Amid Operational Challenges

Taking all factors into account, Purple Finance currently appears overvalued. The company’s negative earnings, poor returns on capital, and unfavourable valuation multiples relative to peers indicate that the market price may not fully reflect underlying risks. While the stock has shown some short-term resilience, its long-term performance and fundamentals remain concerning.

Investors should exercise caution and consider the broader sector context and peer valuations before committing capital. The elevated price-to-book ratio combined with negative profitability metrics suggests that Purple Finance’s current valuation is not supported by its financial health or growth prospects.

For those seeking exposure to the NBFC sector, exploring companies with stronger earnings, positive returns on equity, and more reasonable valuation multiples may offer a more balanced risk-reward profile.

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