Trailing P/E Under 87.9 Percent Inflation: Isfahan Oil Refining's 6.0 Is Closer to 11.3 in Today's Money (Tuesday, 4 August 2026)

The price to earnings ratio is a simple fraction: today's share price divided by the profit a company earned over the past twelve months. But when those twelve months are a period in which the general price level rose 87.9 percent, the numerator and the denominator are no longer written in the same currency.

The Statistical Center of Iran put year-on-year inflation for Tir 1405 (the Iranian month ending 22 July 2026) at 87.9 percent, and annual average inflation at 66 percent. The price on the board is read in today's rial; earnings per share are read in a rial that is, on average, close to a year older. Dividing one by the other without correction makes the market look cheaper than it is, and that cheapness is structural rather than a sign of value.

One distinction up front: this report is not about the accounting traps of a single symbol. We opened that up earlier in A Low P/E Does Not Always Mean Cheap. Here the subject is a single macroeconomic distortion that sits on every symbol on the board at once, from the largest refiner to the smallest company in a group.

Background

The price to earnings ratio was built and popularised in economies with single-digit inflation. There, the difference in the value of money between this year and last is small enough to ignore, and the fraction can be read as it stands. In an economy with year-on-year inflation near 88 percent, ignoring it is no longer an approximation; it is a measurement error.

The precise mechanism sits inside the financial statements. Cost of goods sold and depreciation are recorded at historical cost: inventory at what it was bought for months ago, fixed assets at what they cost years ago. Revenue, however, is recognised at today's prices. The gap between the two produces part of the reported profit that is really an inventory holding gain rather than repeatable operating profit. So the denominator of the fraction is both late and inflated, and both errors push in the same direction.

In Inflation Has Outrun Money Growth we showed that prices have run ahead of the money supply. The figure this report uses for Tir 1405, 87.9 percent, comes from the Statistical Center of Iran's consumer price index report for that same month.

The numbers

The adjustment method is explicit and hides nothing: divide the past twelve months of earnings by 1.879 (one plus 87.9 percent) so it is expressed in today's purchasing power, then divide today's price by that restated figure. Board figures are the close of Monday, 3 August 2026 (12 Mordad 1405), and every amount is in rial. Note that a rial is one tenth of a toman.

One methodological caveat has to be said plainly: this is an illustrative calculation, not a restated financial statement. It assumes the whole profit was recognised exactly one year ago, whereas profit is earned gradually across the year. The 1.879 multiplier therefore marks the ceiling of the distortion rather than its exact size. Its direction, though, is certain and identical across every symbol: under high inflation a trailing P/E always understates, never overstates.

The last row of the table makes a separate point. Saipa closed with earnings per share of minus 154 rial, and a P/E of minus 3.3 is not a number, only a sign. For a loss-making company the ratio is undefined, and an inflation adjustment does not rescue it; all the adjustment does is show how large the real loss is in purchasing power terms.

Drivers: why the distortion is not the same across industries

This is the heart of it. General inflation is a single number, but prices do not move together or at the same time. In the same Tir 1405 report, while headline year-on-year inflation was 87.9 percent, year-on-year rent inflation came in at just 31.7 percent and monthly headline inflation at 3.1 percent. If prices inside a household basket diverge that far, expecting corporate profit to track inflation uniformly is not a reasonable expectation.

Companies with currency-linked or commodity revenue. Refiners, base metals producers and petrochemicals sell on a formula tied to the global price and the exchange rate. When the exchange rate rises, their rial revenue updates almost without delay. Their trailing profit therefore lags less, and the P/E distortion is smaller for them. We set out the full transmission mechanism in Valuing a Stock With Three Tools.

Companies whose selling price is administered. Carmakers, pharmaceuticals and part of the food industry receive price-increase permits late and in steps, while their raw materials get more expensive at the current inflation rate. Here trailing profit really is expressed in last year's money, and the margin is under pressure as well. The distortion is largest for this group, and in the severe case it ends up where Saipa has ended up.

Banks. The bank case differs from both. Deposit and lending rates are set administratively and do not move quickly, but a bank's balance sheet is full of monetary assets and liabilities that inflation redistributes directly. A board P/E of 2.6 for Bank Mellat looks extraordinary at first glance; adjusted, it reaches about 5.0, which is still low but no longer that startling bargain.

Why comparing the market to its own historical average is also meaningless

The most common argument at the moment is that the Tehran exchange's P/E is below its own long-run average, so the market is cheap. The trouble with that argument is that both ends of the comparison are contaminated by different inflation rates. The historical average comes from years when year-on-year inflation was sometimes below 20 percent and the distortion was negligible. Today's number comes from a year in which the distortion is close to double.

In other words, you are comparing two quantities measured with two different rulers and concluding that one is smaller. Until both ends are adjusted for the inflation of their own period, the comparison says nothing about value. The same point applies to the peak-year comparisons we drew in That Year the Price Was at Its Peak, Today It Is the Risk.

Outlook

Two paths shrink this distortion. First, inflation itself coming down: every percentage point off the year-on-year rate comes straight off the adjustment multiplier. Second, the passage of time and the publication of fresher financial statements, because each new quarterly report pulls the denominator closer to today's rial. Until then, the most practical alternative for an investor is to work from a forward earnings estimate rather than a trailing P/E, because a forward estimate is written in future rial from the start and does not carry this unit mismatch. These are analytical frames, not numerical forecasts and not buy or sell advice.

Bottom line

The Tehran market is not as cheap as the board suggests; it is simply measuring its profit in last year's money. With year-on-year inflation at 87.9 percent in Tir 1405, every trailing P/E on the board understates by up to roughly 1.88 times: Isfahan Oil Refining's 6.0 is in practice about 11.3, and National Iranian Copper's 11.2 about 21.0. If you remember one thing from this report, make it this: before calling a symbol's P/E cheap, ask which year's money the earnings in its denominator were written in. The Tehran exchange index and price pages are not exempt from the same rule.

What to watch

The Statistical Center of Iran's consumer price index report for Mordad and the path of year-on-year inflation; quarterly financial statements filed on Codal (the market's regulatory disclosure system) and how far new earnings sit from inflation; the P/E gap between currency-linked groups and administered-price groups; and changes to pricing permits in industries such as autos and pharmaceuticals.

This report is analytical and educational and is not advice to buy or sell any asset. The adjusted P/E calculation here is Sahmino's own, based on board figures and the announced inflation rate, and is not an official figure of any institution. Inflation figures announced by the Statistical Center of Iran and the Central Bank of Iran are not always identical; this report uses the Statistical Center of Iran. Markets were closed on Tuesday, 4 August 2026 (13 Mordad 1405) for Arbaeen, so board figures are from the last trading session, Monday, 3 August 2026.