Intuition behind Benchmark P/E > Company P/E, Co stock is overvalued

CFA Level II
#1

Isn’t it the other way around or i am missing something here.

#2

Low company P/E means stock price is cheap & undervalued.

And yeah, its the other way around.

#3

But the curriculum states if benchmark PE > Co PE then Co stock is overvalued

#4

Can you cite where it says that? That’s wrong.

#5

Agree with the above, it’s definitely the other way around (or I’m doing my job wrong!). Must be either a typo or a misread.

#6

Discounted dividend valuation Reading - EOC# 9

#7

You are reading the answer wrong. When it says ‘market trailing P/E’ here it is referring to the trailing P/E for the stock (not the overall market). Re-read the first sentence of the question to see what I mean.

Therefore it’s talking about the justified P/E being lower than the market implied trailing P/E for the stock, as such it is overvalued.