Investment Insights
October 31 2023
The P/E Ratio: A User’s Manual
30 min read
Steven Bleiberg, Managing Director, Portfolio Manager, TD Epoch; William Priest, CFA, Executive Chairman, Co-Chief Investment Officer and Portfolio Manager, TD Epoch
Does a stock’s price and its P/E ratio tell you how much a company is worth? Conventional wisdom says yes, but we think otherwise. This paper explores the theory behind the discounted cash flow (DCF) valuation model and the underappreciated role played by ROIC. In addition, we see how the DCF model can be used to deconstruct P/E ratios in the real world.
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