# Justified price multiple

I read that justified price multiple can be computed using either method of comparables or method of forecasted fundamentals. Does warranted or intrinsic mulitple means the multiple calculated with method of forecasted fundamentals? A justified price multiple is the: A) multiple implied by the market price. B) warranted or intrinsic price multiple. C) multiple implied by historical growth. D) unfair multiple implied by misvaluation. Your answer: A was incorrect. The correct answer was B) warranted or intrinsic price multiple. A justified price multiple is the warranted or intrinsic price multiple. It is the estimated fair value of that multiple.

You put in the inputs for P/E…ie RR, g, r, you get a number…that is justified P/E. That is the intrinsic price, or the price it should be trading at if the inputs are accurate. You compare the market P/E to the justified P/E to decide of the stock is undervalued or not

it uses the intrinsic or the ‘fundamental’ factors to calculate the P/E such as r, ROE, g etc

Here is the definitions The justified price multiple for the method of comparables is an average multiple of similar stocks in the same peer group. The justified price multiple for the method of forecasted fundamentals is the ratio of the value of the stock from a discounted cash flow (DCF) valuation model divided by some fundamental variable (e.g., earnings per share). I guess both are called JUSTIFIED p/e s. justified p/e = 1-b/r-g intrinsic p/e = 1/r + franchise factor * growth factor. Are both of above same?

method of comparables and the method of forecasted fundamentals are different approaches to calculate the justified P/E. The idea of the justifed P/E is to calculate a ‘fair value’ P/E or a value that ‘should’ be the P/E. using this you can compare the actual or observed P/E of a firm to figure if its under or over valued. method of comparables means calculating the justified P/E by averaging a bunch P/Es of similar stocks while method of forecasted fundamentals means calculating the justified P/E using intrinsic fundamental variables of the same stock.

justified and intrinsic are the same