Valuation models using average price ratios and 10-year averages can be more useful with cyclical companies, because valuation of cyclical companies benefits from an analysis of longer time periods including at least one business cycle.

Question

Quizplus · Accepted Answer

For companies with cyclical earnings, a P/E using the latest 12 months earnings might be misleading, because these earnings could be high. Using average price ratios and 10-year averages probably will give a truer valuation.

Valuation Models Using Average Price Ratios and 10-Year Averages Can