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Basic Question 2 of 4
A justified price multiple is a price multiple at which the stock
B. should be fairly valued based on the method of comparable or forecasted fundamentals.
C. is expected to trade for the next 4 quarters.
A. has traded for the past 4 quarters.
B. should be fairly valued based on the method of comparable or forecasted fundamentals.
C. is expected to trade for the next 4 quarters.
User Contributed Comments 3
| User | Comment |
|---|---|
| farhan92 | A =Trailing B= Leading |
| fabsan | wrong C = leading/ since A and C are contracdictory, B should be right |
| khalifa92 | Common criticism is multiples don't consider the future, counter criticism by forecasting the variables; justified price is extracted from forecasted fundamentals. |
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Learning Outcome Statements
contrast the method of comparables and the method based on forecasted fundamentals as approaches to using price multiples in valuation, and explain economic rationales for each approach;
calculate and interpret a justified price multiple;
describe rationales for and possible drawbacks to using alternative price multiples and dividend yield in valuation;
CFA® 2025 Level II Curriculum, Volume 4, Module 23.