Investigate a low multiple at a listed manufacturer
Price-to-earnings ratio (P/E) · Fictional case
The situation
An analyst spots a manufacturer trading at what looks like a discount to peers. While reading the earnings notes, she finds a gain that management does not expect to repeat.
The research team wants a fair comparison before calling the stock cheap. Show how removing the gain changes the result.
- Share price
- ₹480
- Reported earnings / one-off gain
- ₹40 / ₹10 per share
- Peer multiple
- 15× normalized earnings
Full data and assumptions
A share trades at ₹480. Reported earnings are ₹40 per share, including a ₹10 per share one-off after-tax gain. Comparable peers trade at 15× normalized earnings.
Your task
Compare the reported and normalized P/E with peers.
Reveal step-by-step solution
Set up the problem
Reported P/E is ₹480 ÷ ₹40 = 12×.
Work through the numbers
Remove the gain to get ₹30 recurring earnings per share. Normalized P/E is ₹480 ÷ ₹30 = 16×.
Interpret the result
The share looks cheaper on reported earnings and dearer after adjustment. Check whether the peers and earnings periods are comparable.
What to remember
Use the same reporting period and a consistent treatment of one-off gains.