IAmNeil

elcfa Wrote:
-------------------------------------------------------
> I thought it is level II stuff, no?
>
> Justified PE can be either leading/forward or
> trailing. It is the P/E derived from expected
> payout ratio, expected return and growth rate.
>
> o Leading= (1-b)/(r-g)
> o Trailing= (1-b) (1+g)/(r-g)
>
> It is different from real P/E which is just
> Price/Earnings. Comparing those two ratios can
> give you indication whether the stock is
> 'overvalued' or not.

Elcfa is right. Justified PE is what the PE should be based on "forecasted" fundamentals while what you call the "normal" PE is the current market price divided by the earnings which may be leading (future earnings) or trailing (previous earnings).

If the justified forward PE is higher than "normal" PE, then the stock is undervalued...