Definition

The Median Price to Earnings (PE) Value Without Non-Recurring Items (NRI) is a valuation metric used to assess the relative value of a company's stock by comparing its current share price to its earnings per share (EPS), excluding any non-recurring items that may distort the earnings figure.

Formula

Median PE Value Without NRI = Median Stock Price / (Net Income - Non-Recurring Items) / Number of Shares Outstanding

How to use the valuation method

To use this valuation method, calculate the company's earnings per share by subtracting any non-recurring items from the net income and dividing by the number of shares outstanding. Then, divide the median stock price by this adjusted EPS to get the Median PE Value Without NRI. This metric helps investors determine if a stock is overvalued or undervalued compared to its historical performance or industry peers.

Which industries it work best in

This valuation method works best in industries with stable and predictable earnings, such as consumer staples, utilities, and large-cap industrials, where non-recurring items are less frequent and less impactful on overall earnings.

Which industries it does not apply to and why

It may not apply well to industries with volatile earnings or frequent non-recurring items, such as technology, pharmaceuticals, or startups, where earnings can be significantly affected by one-time events, acquisitions, or research and development costs. In these industries, the exclusion of non-recurring items might not provide a true picture of the company's financial health.

Summary

The Median PE Value Without NRI is a useful tool for evaluating a company's stock value by focusing on its core earnings, excluding one-time events. It is most effective in stable industries with predictable earnings and less applicable in sectors with frequent non-recurring items or volatile earnings.