Originally Posted by Biesterfield
While I agree with that it certainly isn't intuitive since low valuations are associated with something being undervalued like 90+% of the time. The phrasing of "market" is confusing in this case. How exactly is the question asked?
Originally Posted by tastychicken2
The market is what the market it is currently priced at.
what stinkypete said
if you think each dollar of EPS is only worth $10 in stock price and the market thinks it's worth $15 then you should believe that the security is overvalued.
Most of the time when you're "buying low" you're actually buying at the low P/E the market has assigned and assign a higher P/E yourself b/c of reason x y z.
this is what I was looking for. I was interpretting the word "market" to mean the "market P/E" for the industry not the P/E the firm is being traded at. That is why I thought that when I got a justified P/E of 6 and the market was trading at a P/E of 10 I was thinking "this is cheap compared to the market, gotta buy" when in fact the 10 is where the stock itself is trading.
Super helpful and super intuitive. I had the concept down but was a lock to miss any question on this on the test because of the wording.
There is a good chance you 3 just got me one of the 84 questions I need to get right. Thanks for the help.