{"id":5671,"date":"2022-08-19T11:08:26","date_gmt":"2022-08-19T11:08:26","guid":{"rendered":"https:\/\/rakshithpai.com\/?p=5671"},"modified":"2022-08-19T11:11:35","modified_gmt":"2022-08-19T11:11:35","slug":"absolute-pe-model","status":"publish","type":"post","link":"https:\/\/rakshithpai.com\/absolute-pe-model\/","title":{"rendered":"How to Value Stocks Using Absolute PE Model"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-662d981861595\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\" style='display:none' id=\"ez-toc-cssicon-toggle-item-662d981861595\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#What_does_the_Absolute_PE_Model_mean\" title=\"What does the Absolute PE Model mean?\">What does the Absolute PE Model mean?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Absolute_PE_Model_by_Vitaliy_Katsenelson\" title=\"Absolute PE Model by Vitaliy Katsenelson\">Absolute PE Model by Vitaliy Katsenelson<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#How_to_Calculate_Absolute_PE\" title=\"How to Calculate Absolute PE?\">How to Calculate Absolute PE?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Adjusted_PE_includes_the_following\" title=\"Adjusted PE includes the following;\">Adjusted PE includes the following;<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Base_PE\" title=\"Base PE\">Base PE<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#EPS_Growth\" title=\"EPS Growth\">EPS Growth<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Dividend_Yield\" title=\"Dividend Yield\">Dividend Yield<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Risk_Multipliers_include_the_following\" title=\"Risk Multipliers include the following;\">Risk Multipliers include the following;<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Business_Risk\" title=\"Business Risk\">Business Risk<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Financial_Risk\" title=\"Financial Risk\">Financial Risk<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Earnings_Visibility_Risk\" title=\"Earnings Visibility Risk\">Earnings Visibility Risk<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Principles_of_Absolute_PE_Model\" title=\"Principles of Absolute PE Model:\">Principles of Absolute PE Model:<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#The_5_Core_Principles_of_Absolute_PE_Model\" title=\"The 5 Core Principles of Absolute PE Model:\">The 5 Core Principles of Absolute PE Model:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Absolute_relative_PE_ratio\" title=\"Absolute &amp; relative P\/E ratio\">Absolute &amp; relative P\/E ratio<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#How_to_Estimate_Stocks_Via_Absolute_PE_Model\" title=\"How to Estimate Stocks Via Absolute PE Model?\">How to Estimate Stocks Via Absolute PE Model?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#For_More_Information_Check_this_Video\" title=\"For More Information, Check this Video:\">For More Information, Check this Video:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Conclusion\" title=\"Conclusion:\">Conclusion:<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/#Also_read\" title=\"Also read:\">Also read:<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_does_the_Absolute_PE_Model_mean\"><\/span><strong>What does the Absolute PE Model mean?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>Fundamental analysis exists in a dynamic environment.<\/strong> In order to increase the precision of the analytical process, new formulas, methods, strategies, tools, and technologies are frequently presented around the world.\u00a0<\/p>\n\n\n\n<div class=\"wp-block-buttons is-horizontal is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-1 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button is-style-outline\"><a class=\"wp-block-button__link has-text-color has-background\" href=\"https:\/\/zerodha.com\/open-account?c=PR4768\" style=\"border-radius:50px;background-color:#e4fa00;color:#0f0027\" rel=\"nofollow\"><strong>Open Zerodha Account Now!<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<p>However, while most of these new debuts last for a while before being replaced by something new, a select few strategies have managed to hold onto their position. Absolute PE is one such well-liked stock analysis technique.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Absolute_PE_Model_by_Vitaliy_Katsenelson\"><\/span><strong>Absolute PE Model by Vitaliy Katsenelson<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>In his book Active Value Investing, published in 2007, Vitaliy Katzenelson first introduced the absolute PE (Price-to-Earnings) model.<\/strong> Since then, investors have compared and fundamentally analyzed other companies using this methodology.<\/p>\n\n\n\n<p>Based on the company&#8217;s <a href=\"https:\/\/rakshithpai.com\/best-dividend-paying-stocks-in-india\/\">dividend<\/a> yield, earnings growth rate, financial risk, business risk, and earnings visibility,<strong> it calculates the intrinsic value of the stocks. The formula used to determine a company&#8217;s intrinsic value is given below.<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-embed aligncenter is-type-wp-embed is-provider-rakshith-pai wp-block-embed-rakshith-pai\"><blockquote class=\"wp-embedded-content\" data-secret=\"tXE0VFn3uV\"><a href=\"https:\/\/rakshithpai.com\/modern-portfolio-theory\/\">Modern Portfolio Theory &#038; Investment Analysis:<\/a><\/blockquote><iframe class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" style=\"position: absolute; clip: rect(1px, 1px, 1px, 1px);\" title=\"&#8220;Modern Portfolio Theory &#038; Investment Analysis:&#8221; &#8212; \" src=\"https:\/\/rakshithpai.com\/modern-portfolio-theory\/embed\/#?secret=Z79hOB2mDz#?secret=tXE0VFn3uV\" data-secret=\"tXE0VFn3uV\" width=\"200\" height=\"200\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\"><\/iframe><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_Calculate_Absolute_PE\"><\/span><strong>How to Calculate Absolute PE?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There are six steps involved in calculating absolute PE, which are broken down into two groups:\u00a0<\/p>\n\n\n\n<ol><li>Adjusted PE<\/li><li>Risk Multipliers<\/li><\/ol>\n\n\n\n<p>Here, you must first understand the business before calculating the degree of risk involved. <strong>It&#8217;s difficult to determine the level of business risk and either give it a premium value or a discount. However, this model contains guidelines that make it feasible and desirable.<\/strong><\/p>\n\n\n\n<div class=\"wp-block-buttons is-horizontal is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-2 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button is-style-outline\"><a class=\"wp-block-button__link has-text-color has-background\" href=\"https:\/\/zerodha.com\/open-account?c=PR4768\" style=\"border-radius:50px;background-color:#e4fa00;color:#0f0027\" rel=\"nofollow\"><strong>Open Zerodha Account Now!<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Adjusted_PE_includes_the_following\"><\/span><strong>Adjusted PE includes the following;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Base_PE\"><\/span><strong>Base PE<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The price-earnings ratio sometimes referred to as the P\/E ratio, P\/E, or PER, measures how much a company charges for its shares compared to how much it earns per share. <strong>The ratio is used to figure out whether a business is overvalued or undervalued.<\/strong><\/p>\n\n\n\n<p>And, Base PE is when we know there\u2019s no growth in the company&#8217;s earnings. So, we value a company&#8217;s share price by its current market price to its current earnings per share. Consider this as your 1st-year earnings. So, there\u2019s no growth involved.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"EPS_Growth\"><\/span><strong>EPS Growth<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>Each year, every quarter, the company comes up with its financial statement and earnings figures. <strong>We see the growth rate of Earnings per share over the period, we see the trend of growth and quantum and the pace of increase.\u00a0<\/strong><\/p>\n\n\n\n<p>Aggressive growth in earnings could make the PE ratio seem attractive and vice versa. Since the denominator of the PE ratio is Earnings, we must know the growth rate number in order to find the adjusted PE.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Dividend_Yield\"><\/span><strong>Dividend Yield<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p><strong>The dividend per share divided by the share price equals the dividend yield, also known as the dividend-price ratio of a share.<\/strong> It is also the total annual dividend payments made by a firm divided by its market capitalization. It&#8217;s frequently stated as a percentage.<\/p>\n\n\n\n<p>Since the dividend is the earnings distributed to shareholders, we need to know the growth in dividend earnings in the hands of shareholders to estimate the absolute PE of a company.<\/p>\n\n\n\n<figure class=\"wp-block-embed aligncenter is-type-wp-embed is-provider-rakshith-pai wp-block-embed-rakshith-pai\"><blockquote class=\"wp-embedded-content\" data-secret=\"A6htc3vw7b\"><a href=\"https:\/\/rakshithpai.com\/best-dividend-paying-stocks-in-india\/\">15 Highest Dividend Paying Stocks in India 2023<\/a><\/blockquote><iframe class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" style=\"position: absolute; clip: rect(1px, 1px, 1px, 1px);\" title=\"&#8220;15 Highest Dividend Paying Stocks in India 2023&#8221; &#8212; \" src=\"https:\/\/rakshithpai.com\/best-dividend-paying-stocks-in-india\/embed\/#?secret=HavPEMhQic#?secret=A6htc3vw7b\" data-secret=\"A6htc3vw7b\" width=\"200\" height=\"200\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\"><\/iframe><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Risk_Multipliers_include_the_following\"><\/span><strong>Risk Multipliers<\/strong><strong> include the following;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Business_Risk\"><\/span><strong>Business Risk<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>Business risks are the chances that a company will have insufficient profits as a result of unpredictabilities such as shifts in consumer preferences, strikes, increasing competition, shifts in governmental regulations, obsolescence, etc.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-horizontal is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-3 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button is-style-outline\"><a class=\"wp-block-button__link has-text-color has-background\" href=\"https:\/\/zerodha.com\/open-account?c=PR4768\" style=\"border-radius:50px;background-color:#e4fa00;color:#0f0027\" rel=\"nofollow\"><strong>Open Zerodha Account Now!<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<p><strong>Business risk can be both due to internal and external factors in an economy. <\/strong>Business risks affect the company&#8217;s Revenue, and Gross &amp; net profit.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Financial_Risk\"><\/span><strong>Financial Risk<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The risk that firms take relating to their financial transactions is known as financial risk. It is the company&#8217;s own credit risk with suppliers, vendors, and various stakeholders. When a company offers its clients financing for goods, it assumes a financial risk because there is a chance that the customer could stop making payments.<\/p>\n\n\n\n<p><strong>A business must manage its own credit responsibilities by making sure it always has enough cash flow to make timely payments on its accounts payable bills.<\/strong> If this doesn&#8217;t happen, suppliers may either cease giving the company credit or perhaps stop working with the company altogether.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Earnings_Visibility_Risk\"><\/span><strong>Earnings Visibility Risk<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p><strong>Earnings Visibility is seeing for those factors that could dampen the company&#8217;s earnings capability. <\/strong>It is to see if there\u2019s any reason for the company to earn less in the coming quarters. And, if so, what is the impact?<\/p>\n\n\n\n<p>If we are unable to predict the future earnings of the company be it due to the organization being a cyclical one or of unique business models, the said company would be termed a risky venture.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Principles_of_Absolute_PE_Model\"><\/span><strong>Principles of Absolute PE Model:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>It&#8217;s critical to comprehend the big picture for each condition, as this model is based on how the 6 criteria listed above function.<\/p>\n\n\n\n<p>You&#8217;ll find it much simpler to use this absolute valuation approach if you take a step back and consider the larger picture rather than just trying to figure out the formula and get to work.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_5_Core_Principles_of_Absolute_PE_Model\"><\/span><strong>The 5 Core Principles of Absolute PE Model:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ol><li>Base PE is considered with no potential growth in Earnings.&nbsp;<\/li><li>Understand the Impact of Earnings Growth on the PE ratio.<\/li><li>Consider Dividend Yield (if paid by the company) in your Valuation metrics.<\/li><li>Business Risk is not certain. Infact, nobody can estimate the exact impact on business due to its external forces.<\/li><li>Financial &amp; Earnings Risk is estimated based on the analyst&#8217;s calculation. No certainty over what the figures could be.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Absolute_relative_PE_ratio\"><\/span><strong>Absolute &amp; relative P\/E ratio<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>Absolute P\/E is simply the price of a stock divided by the company&#8217;s earnings per share (EPS).<\/strong> This metric shows how much money investors are willing to part with for every rupee of profit. The relative P\/E ratio, on the other hand, is a metric that contrasts the present P\/E ratio with the company&#8217;s or a benchmark&#8217;s previous P\/E ratios.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-horizontal is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-4 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button is-style-outline\"><a class=\"wp-block-button__link has-text-color has-background\" href=\"https:\/\/zerodha.com\/open-account?c=PR4768\" style=\"border-radius:50px;background-color:#e4fa00;color:#0f0027\" rel=\"nofollow\"><strong>Open Zerodha Account Now!<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_Estimate_Stocks_Via_Absolute_PE_Model\"><\/span><strong>How to Estimate Stocks Via Absolute PE Model?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Finding the Adjusted PE\u2014a base PE that has been modified for EPSG and DY\u2014is the first step in calculating Absolute PE. The following formula can be used to compute Absolute PE after you have the base PE:<\/p>\n\n\n\n<p><strong><em>Absolute PE = Adjusted PE (X) Risk Multiplier [BR x FR x EVR]<\/em><\/strong><\/p>\n\n\n\n<p><strong>The absolute PE ratio&#8217;s denominator can be either the trailing EPS (from the trailing 12 months [TTM]), the estimated EPS for the next 12 months (forward P\/E), or a combination of the trailing EPS of the last two quarters and the forward P\/E for the next two quarters.<\/strong><\/p>\n\n\n\n<p>Typically, the numerator of this ratio is the current stock price. For instance, the P\/E is 20 (Rs.100 \/ Rs.2 per share earnings) if the company is now trading for Rs.100 and the TTM earnings are Rs.2 per share.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"For_More_Information_Check_this_Video\"><\/span><strong>For More Information, Check this Video:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<div class=\"ast-oembed-container \" style=\"height: 100%;\"><iframe loading=\"lazy\" title=\"What is Price to Earnings Growth (PEG) ratio? How is it Better than #peratio #pegratio #shorts\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/igcMrMUGflg?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/div>\n<\/div><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>You can utilize a strategy that employs stock multiples in a much more isolated way by applying the absolute PE method. <\/strong>You don&#8217;t have to just focus on competing multiples and try to change your stock to meet their requirements. Instead, you can use it in a more general way.<\/p>\n\n\n\n<p>It&#8217;s simple to start entering data into a spreadsheet and taking the data at face value. But what you really need is a variety of valuation models from which you can choose the one that applies to that stock.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-horizontal is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-5 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button is-style-outline\"><a class=\"wp-block-button__link has-text-color has-background\" href=\"https:\/\/zerodha.com\/open-account?c=PR4768\" style=\"border-radius:50px;background-color:#e4fa00;color:#0f0027\" rel=\"nofollow\"><strong>Open Zerodha Account Now!<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<p>Although the model is subjective and the quality of the outputs depends on the quality of the inputs, the method is simple to understand and put into practice.<\/p>\n\n\n\n<p><strong>Disclaimer: <\/strong>All the information on this website is published in good faith and for general information purposes only.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Also_read\"><\/span><strong>Also read:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><a href=\"https:\/\/rakshithpai.com\/modern-portfolio-theory\/\" target=\"_blank\" rel=\"noreferrer noopener\">Modern Portfolio Theory &amp; Investment Analysis:<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/rakshithpai.com\/50-30-20-budgeting-rule\/\" target=\"_blank\" rel=\"noreferrer noopener\">The 50\/30\/20 Rule of Budgeting. Its Features &amp; Importance Explained:<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/rakshithpai.com\/small-cap-investing\/\" target=\"_blank\" rel=\"noreferrer noopener\">Small-Cap Investing: Features, Advantages &amp; Disadvantages Explained:<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/rakshithpai.com\/avoid-investment-mistakes\/\" target=\"_blank\" rel=\"noreferrer noopener\">Top 10 Investment Mistakes To Avoid:<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/rakshithpai.com\/focused-investing\/\" target=\"_blank\" rel=\"noreferrer noopener\">Stock Market Distractions! Find the path to Focused Investing:<\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>What does the Absolute PE Model mean? Fundamental analysis exists in a dynamic environment. 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Fundamental analysis exists in a dynamic environment. 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