Equity Question

CFA Level II
#1

I’m confused about an equity valuation concept. In the Forecasted Fundamentals approach we estimate the value calculated from fundamental factors i.e Justified P/E ratio. While in the market comparable approxh we compare market ratios of the company to a benchmark.

My question if can we compare justified P/E ratio of one company to another company’s Justified P/E ratio to determine over/undervalution?

Also, comparing market observed P/E ratio of company A to its justified P/E ratio, does that fall in the comparables approach of forecasted fundamentals?

#2

My question if can we compare justified P/E ratio of one company to another company’s Justified P/E ratio to determine over/undervalution?

We do not do that.

Also, comparing market observed P/E ratio of company A to its justified P/E ratio, does that fall in the comparables approach of forecasted fundamentals?

Method of forecasted fundamentals.

#3

why not?

#4

Some investment specialists use up to 50+ ratios for comparables approach, so… use any ratio you want as long as it provides meaningful information.

If you compare one company’s ratios, then you are not making use of a comparables investment approach. You must compare different companies ratios.

#5