FM syllabus
PE Ratio Method - Limitations 5 / 20
Sometimes, there's no company like it to compare
Even if there's a similar company, its value on the stock market might not be right
The company being valued might pretend to earn more than it really does.
Even if earnings are honest, they might not show how much the company will earn later.
The seller knows more about the company than the buyer.
The P/E ratios might not be the best way to measure. Share prices can change a lot.
This method doesn't work well for valuing small pieces of a company.