Definition

The Price to Earnings Growth (PEG) Ratio Without NRI is a valuation metric that compares a company's price-to-earnings (PE) ratio to its expected earnings growth rate, excluding non-recurring items (NRI). This ratio helps investors assess whether a stock is overvalued or undervalued based on its earnings growth potential, while excluding one-time gains or losses that may not reflect the company's ongoing performance.

Formula

PEG Ratio Without NRI = (Price/Earnings Without NRI) / Earnings Growth Rate

How to use the valuation method

To use the PEG Ratio Without NRI, investors first calculate the PE ratio using earnings that exclude non-recurring items. They then divide this PE ratio by the company's expected earnings growth rate. A PEG ratio below 1 may indicate that the stock is undervalued relative to its growth potential, while a ratio above 1 could suggest overvaluation.

Which industries it work best in

The PEG Ratio Without NRI works best in industries with stable and predictable growth rates, such as consumer staples and utilities, where earnings are less likely to be affected by non-recurring items.

Which industries it does not apply to and why

This metric may not be as effective in industries with volatile earnings or significant non-recurring items, such as technology or biotech, where growth rates can be unpredictable and earnings may include substantial one-time gains or losses.

Summary

The PEG Ratio Without NRI is a useful tool for evaluating a stock's valuation relative to its growth potential, excluding non-recurring items. It is particularly effective in stable industries but may be less applicable in sectors with volatile earnings or significant non-recurring items.