I’m on LOS 29L.
We want to determine the terminal value of a DCF using price multiple. We can use either the company’s own historical P/E ratio, or a benchmark’s P/E ratio to get the terminal value (multiplying P/E with earnings).
The Schweser book gave us a formula of justified P/E and the mention that the pros of this comparable method is that it uses only market data, as oppose to calculating growth rates etc.
My question is, isn’t this false? I thought for Justified P/E ratio, we are calculating both price and earnings based on fundamentals, growth rate, etc.