Why using P/E alone might be misleading

A recent client tried to estimate their company’s value by applying the P/E ratio of similar listed companies.
While  PE is one of the most popular methods being used , it’s not a recommended one for this company. Here is why.

Two companies can be in the same industry…and still be completely different businesses.

Different:

• Revenue size
• Growth rate
• Accounts receivable & collection quality
• Inventory management
• Debt level
• Cost structure
• Internal policies
• Expansion plans

And most importantly — risk profile.

Listed companies also benefit from:

• Liquidity premium
• Broader access to funding
• Stronger governance perception

When we apply a listed company’s P/E directly to a private company without adjustments, we ignore all of these differences.

And valuation is all about understanding differences.

P/E is a reference point — not a shortcut.

Every company is unique.
And valuation should reflect that.

—
ORNA Company Limited
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