Could you please confirm whether my understanding is correct? This is on page 250 of the cfa curriculum… If the implied growth duration is greater than you believe is reasonable, you should advise aganist buying and if the implied growth duration is below your expectations you would recommend buying the stock My understanding is as follows… if you believe the company will grow by a certain amount and the implied growth duration is less than what you are anticipating then it is an undervalued stock and there is more room for an increase in price (better prospects) and so you recommend a buy. However, if the implied growth duration is higher than what you believe the price would already be reflecting this growth and it would be an overvalued stock. Thus will not buy the stock. This is is my understanding and hope that it makes sense… Thank you
C’mon why do I have special expertise at this, especially because I don’t have thye books (now if someone would be so kind as to send me sets, I would be appreciative). I’ll weigh in if other can’t answer…
That is correct. If the implied growth rate (built into the price of the stock) shows that the market price of the stock expects a high growth rate, but your analysis shows that it will not grow at this speed then the stock is overvalued. The reverse is also true.
Thank you very much…