For decades, the price-to-earnings (PE) ratio has been one of the most widely used valuation metrics in equity markets, a quick way to gauge whether a stock looks cheap or expensive. But in today’s environment, stretched valuations across global indices mean the PE ratio is no longer the be-all and end-all when assessing investment opportunities. Investors need to look deeper, sector by sector, to identify true value and resilience.

A Sector-Specific Lens

In mining, for instance, the PE ratio often tells only part of the story. Gold producers like Northern Star (ASX: NST) or Evolution Mining (ASX: EVN) are better judged by metrics such as All-In Sustaining Costs (AISC), grade quality, and life-of-mine outlook. With spot gold topping record highs and margins widening, those delivering low AISC and consistent production profiles stand to outperform peers regardless of headline valuations. The same applies in silver and copper, where the early innings of a new resources boom, fuelled by electrification and defence-related demand, could see undervalued copper producers such as Sandfire Resources (ASX:SFR) and Aeris Resources (ASX:AIS) regain investor interest.

Retail stocks, meanwhile, demand attention beyond simple earnings multiples. Inventory levels, cash flow discipline, pricing lifts to expand margins and consumer spending trends now matter just as much as PE ratios. Retailers with tight stock control and pricing power such as JB Hi-Fi (ASX: JBH) or Baby Bunting (ASX:BBN) have proven that operational agility can offset softer top-line growth in a cautious spending environment.

For consumer staples, investors should consider terminal growth value, regulatory pressures, and competitive dynamics rather than headline valuation. Giants like Woolworths (ASX:WOW) and Coles (ASX:COL) trade on premium multiples, but the real question is whether their long-term growth can justify those premiums in a low-inflation, high-competition landscape.

In utilities, capital expenditure requirements, premium structures, and new market entrants are key factors to analyse when making an investment decision. With infrastructure upgrades and the energy transition demanding heavy reinvestment, companies like Origin Energy (ASX:ORG) or APA Group (ASX:APA) will be judged as much on their ability to manage balance sheets and maintain margins as on their near-term earnings multiple.

Macro Themes Still Shaping Returns

The energy sector remains tightly bound to OPEC+ decisions and geopolitical risks. Oil and gas producers such as Woodside Energy (ASX:WDS) and Santos (ASX:STO) have rallied on supply-side tightness, while the green energy transition continues to offer long-term upside for diversified players exposed to renewables.

Defence is emerging as a new thematic being likened to the early stages of the AI boom. Companies like Electro Optic Systems (ASX:EOS) and DroneShield (ASX:DRO) have seen explosive earnings growth as governments globally ramp up spending which serves as a reminder that sector tailwinds can overtake traditional valuation models. With DRO trading on a multiple over 100x, the growth potential of government contracts and first-of-its-kind software make the company attractive in the eye of an investor, more so than the stretched valuation that some may consider a red flag.