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Explain undervaluation of share on the market or interpret

Suppose we calculate g as ROE (1–p)/(1–ROE (1–p)) and the Ke by the CAPM. We replace both values into the formula PER = (ROE (1+g) – g)/ROE (Ke-g) but there PER we obtain is fully different from the one we get by dividing the quotation of the share to the earnings/share. Is this possible to undervaluation of that share on the market or interpret that difference as an overvaluation?

E

Expert

Verified

The g that influences the PER is not ROE (1-p)/ [1 – ROE (1–p)], but there expected average growth of the profit /share, that is not observable.

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