If you have recently started trading Iranian equities, the odds are you met "P/E" before any other piece of jargon: on the trading board, in Telegram groups, in analyst notes. And it almost always arrived attached to one simple sentence: "a low P/E means the stock is cheap."
That sentence is incomplete at best and expensive at worst. An example sits in this very market: Karbon (Kani Karbon Tabas) traded at a price to earnings ratio of roughly 5.1 on Monday 13 July 2026 (22 Tir 1405), while its coal group average stood at 21.8. A gap of more than four times. The question is whether that number means the stock is four times cheaper, or whether it means the market knows something the ratio cannot show.
Background: what the number actually measures
P/E stands for price to earnings: the ratio of the share price to earnings per share. The formula is simple and ends there:
P/E = share price ÷ earnings per share (EPS)
Suppose a company's share price is 12,000 tomans and its earnings per share is 1,000 tomans. The P/E is 12. (These figures are hypothetical, included only to show the calculation.)
The interpretation is more interesting than the arithmetic. A P/E of 12 means the market is willing to pay 12 tomans for every one toman of the company's annual profit. Put differently: if profitability stayed exactly flat, it would take 12 years for the investment to be repaid out of earnings.
The inverse is just as useful: 1 divided by 12 is about 8.3 percent, the annual earnings yield relative to the price you paid. That small rearrangement turns P/E from an abstract number into something you can hold against deposit rates and fixed income yields.
A note on Iranian terms used below: Codal is the Tehran exchange's official corporate filing system, where listed companies publish their financial statements, and the toman is the everyday unit equal to ten rials. Sahmino's Learn section builds the underlying EPS mechanics step by step; this piece starts where that lesson ends, at the point where the number is calculated correctly but read wrongly.
Two P/E figures that get confused constantly
This distinction is the heart of the matter.
Trailing P/E (TTM): based on realised profit over the past twelve months. A recorded fact, verifiable in the financial statements.
Forward P/E: based on forecast profit for the next twelve months. A guess, however informed.
Equity markets price the future, not the past. So a stock with a high trailing P/E may not be expensive at all if the market expects profit to jump; and a stock with a low trailing P/E may not be cheap at all if the market expects profit to fall. When two people disagree about "the P/E of this stock", they are usually not discussing the same number.
Figures recorded in the market
Several dated examples from recent Tehran trading, all from Sahmino's earlier reporting:
| Symbol | Price to earnings ratio | Date recorded |
|---|
| Karbon (Kani Karbon Tabas) | about 5.1 against a group average of 21.8 | Monday 13 July 2026 (22 Tir 1405) |
| Femeli (National Iranian Copper Industries) | about 22.4 | Sunday 5 July 2026 (14 Tir 1405) |
| Gholkoresh (Koresh Food Industry) | level with its group average, despite a 6.4 fold price rise over one year | Tuesday 21 July 2026 (30 Tir 1405) |
For broader context, the TEDPIX headline index closed its last recorded session, Wednesday 29 July 2026 (7 Mordad 1405), at 5,075,098 points. The Tehran exchange is closed on Thursdays and Fridays, the Iranian weekend, so that remains the last official board figure until Saturday's reopening.
The Gholkoresh case is instructive: the price rose roughly 6.4 fold in a year, yet the price to earnings ratio stayed level with its group. Profit grew at roughly the same pace. A price jump on its own says nothing about cheap or expensive; what matters is where the price sits relative to earnings.
Drivers: the four situations where a low P/E lies
Return to the opening question. When you see a stock on a P/E of 3 while the market average is several times that, the first reaction is "how cheap". But there is another possibility: the market knows the profit is not durable. If next year's profit halves, that same stock, with no change in price at all, suddenly carries a P/E of 6. It was never cheap; its profit was simply temporary. This is called a value trap, and on the Tehran exchange it is built mainly along four routes.
1. A commodity producer at the top of its cycle
A steel, copper or petrochemical company posts extraordinary profit in a year when the global price of its product is at a peak, and its P/E drops sharply. But that profit is the product of a commodity cycle, not the company's permanent earning power. When the cycle turns, the denominator shrinks and the ratio jumps. This is the most frequent trap on the Tehran exchange, because commodity producers carry heavy weight in this market.
2. Non-operating profit
A company that has sold a property or a stake in a subsidiary books a large one off gain that year, one that will never repeat. A low P/E produced by such a gain is thoroughly misleading, because the company's operating profit has not actually changed. Detecting it is not hard: separate operating profit from net profit in the Codal filings. If the gap between those two figures suddenly widens in a single year, find the reason before drawing any conclusion.
3. Inflationary profit
This one belongs to high inflation economies and looms large on the Tehran exchange. Inflation lifts companies' rial revenues and nominal profit grows, which mechanically pulls the P/E down. But part of that "profit" is not real: it comes from the rising value of inventory, and the company must spend that same money on more expensive raw materials in the next period. The number on paper is bigger; the real production and earning capacity is unchanged. That is why, during periods of severe inflation, a low market wide P/E should not be read straight away as cheapness.
4. Where the ratio simply does not work
Three situations strip P/E of meaning. First, a loss making company: when earnings per share is negative, P/E becomes a meaningless number and you need ratios such as price to sales or price to book instead. Second, cross industry comparison: a bank's P/E is not comparable with a pharmaceutical company's, because growth rates, capital intensity and inherent risk give every industry its own natural range. The valid comparison is a company against its own industry average and against its own history. Third, capital increases: once the share count has changed, unadjusted EPS is not comparable with the past.
The forgotten anchor: the risk free rate
One simple relationship is routinely dropped: the market's general P/E level moves inversely with the risk free rate. The higher the yield on fixed income instruments, the lower the P/E an investor demands before accepting equity risk, because the low risk alternative has become more attractive. That means the market's "natural" P/E is not a fixed historical constant; it moves with competing rates. Comparing today's P/E with a ten year average, without asking where the risk free rate sat across those ten years, is not a valid comparison.
Outlook
Unlike the sections above, this is not recorded fact and should be read as such. For as long as inflation and the risk free rate in Iran's economy stay near current levels, the gap between the nominal P/E and what might be called the real P/E can be expected to stay open, and low ratios in commodity groups will likely keep signalling market doubt about profit durability rather than cheapness. This is an interpretation, not a numerical forecast, and it recommends no security.
Conclusion
P/E is not an answer; it is a question. It takes a second to calculate, but without knowing where the profit came from, whether it lasts, and which industry it sits in, it proves nothing. Karbon's four fold gap against its group average on 13 July 2026 could have been an opportunity or a warning; the ratio itself never says which. The one thing to remember: every time you see an unusual P/E, ask four questions before concluding. Where did this profit come from, operating or non-operating? Is it repeatable next year? What is the industry P/E, and why does this company differ? What has the company's own P/E been over the past five years? If the number still looks attractive after those four questions, you have found something. If not, you have simply stepped around a trap.
What to watch
Three things will keep this question live in the coming weeks: quarterly filings landing on Codal and the gap between operating and net profit inside them; global commodity prices, which move the profits of the Tehran exchange's commodity groups and therefore their P/E ratios directly; and fixed income yields, the comparison anchor for the whole market. Sahmino's events calendar tracks filing dates, and the articles archive carries the company by company reporting these examples are drawn from.
This is educational material and is not a recommendation to buy or sell any security. The calculation examples are hypothetical, and the named cases are included solely to illustrate the mechanism, with the dates on which they were recorded.
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