If the company’s intrinsic P/E calculated by the Franchise Factor model is higher than market P/E then should we buy or sell the stock?
Buy the stock if the IV>MP as there is upside potential and the price should converge on the IV.
If Price of Stock in market is $100 and earnings are $10, the market P/E is 10. If we go through and conduct a FCF or DDM and determine that the market price of the stock should be $200 (exaggerated example), with earnings of $10, than the P/E is 20. Thus, we should buy the stock because our intrinsic calculation is telling us the price should be $200 not $100 (market price).
not a good explanation ,thommo
That’s not a FF related explanation. FF is about growth potential. If I calc’d the price to be $200 , why would I need to look at a P/E ? I’d just look at a justified Price and decide