Definition

Mean Price to Earnings (PE) Value Without NRI refers to the average price-to-earnings ratio of a company, excluding non-recurring items (NRI) from its earnings. Non-recurring items are unusual or infrequent gains or losses that are not expected to occur regularly.

Formula

Mean PE Without NRI = (Market Price per Share) / (Earnings per Share - Non-Recurring Items per Share)

How to use the valuation method

To use this valuation method, calculate the PE ratio by dividing the current market price per share by the earnings per share after adjusting for non-recurring items. This adjusted PE ratio provides a clearer picture of the company's ongoing profitability and can be used to compare it with other companies or industry averages.

Which industries it work best in

This method works best in industries where companies frequently have non-recurring items, such as technology or pharmaceuticals, where research and development costs or one-time legal settlements might skew earnings.

Which industries it does not apply to and why

It may not be as applicable in industries with stable and predictable earnings, such as utilities or consumer staples, where non-recurring items are less frequent and have a minimal impact on overall earnings.

Summary

The Mean PE Value Without NRI provides a more accurate measure of a company's valuation by excluding irregular earnings impacts. It is particularly useful in industries with frequent non-recurring items, offering a clearer comparison of ongoing profitability.