A closer look at relative valuation Unlike the DCF model, relative valuation is based on a different principle and therefore, has its own set of issues.

I introduce a simple, return-forecasting model and apply it to a large number of international stock markets. See why U.S. looks attractive relative to global peers.

However, the price-earnings relative valuation model assumes that the long-term growth and risk profile of the firm has not fundamentally changed over time.

PepsiCo's product portfolio includes 23 brands that generate more than $1 billion in revenue each. Both DCF and Relative Valuation Models show that PepsiCo is undervalued.

However, the price-earnings relative valuation model assumes that the long-term growth and risk profile of the firm has not fundamentally changed over time.

Relative valuation ratios should be used to supplement but not to supplant the true determination of value for productive assets as found in intrinsic value models.

Conclusion The rough intrinsic and relative valuation models indicate that the firm was trading close to its intrinsic value.

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