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John Moffat.
John Moffat.-
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Anonymous
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why CAPM is not proper for companies with low P/E ratio?
John Moffat
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In theory, CAPM would apply to any shares. However, we do not have a perfect market, and a low PE (relative to other companies in the same sort of business) could suggest that the share is being undervalued.
dazhong0703
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So P/E ratio low, is it because share is undervalued, or shareholders’ value is low? What other factors need to consider to get a more appropriate conclusion, pls? Thank you.
John Moffat
- Topics: 57
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A low PE suggests that maybe the share is undervalued. (The value of the share itself might be high or might be low).
Other things you might look at for confirmation are the historical growth (compared with similar companies), any knowledge of the companies future plans that might have affected expectations, even the asset value.
John Moffat
dazhong0703
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