Definition

The Price to Earnings (PE) Ratio Without Non-Recurring Items (NRI) is a financial metric used to evaluate the valuation of a company's stock by comparing its current share price to its earnings per share (EPS), excluding any non-recurring items. Non-recurring items are unusual or infrequent gains or losses that are not expected to occur regularly.

Formula

PE Ratio Without NRI = Current Share Price / (Net Income - Non-Recurring Items) / Number of Shares Outstanding

How to use the valuation method

Investors use the PE Ratio Without NRI to assess whether a stock is overvalued or undervalued by comparing it to the company's historical PE ratios, the industry average, or the market as a whole. By excluding non-recurring items, this ratio provides a clearer picture of a company's ongoing profitability and operational performance.

Which industries it work best in

The PE Ratio Without NRI works best in industries with stable earnings and fewer non-recurring items, such as consumer staples, utilities, and healthcare. These industries typically have predictable earnings, making it easier to assess the company's core profitability.

Which industries it does not apply to and why

This ratio may not be as applicable to industries with volatile earnings or frequent non-recurring items, such as technology, mining, or startups. These industries often experience significant fluctuations in earnings due to rapid innovation, commodity price changes, or one-time events, which can distort the PE ratio.

Summary

The PE Ratio Without NRI is a useful tool for evaluating a company's stock valuation by focusing on its core earnings, excluding non-recurring items. It is particularly effective in industries with stable earnings but may be less reliable in sectors with volatile or irregular earnings patterns.