Katsenelson · Absolute P/E model
Starts from a no-growth P/E, adds points for earnings growth and dividends to set a basic P/E, then adjusts for business risk, financial risk and earnings visibility, turning qualitative quality into an explainable fair P/E.
- Guide level
- Practical
- Output
- Relative valuation
Core formula
Fair P/E = basic P/E × (1 + (1 − business risk)) × (1 + (1 − financial risk)) × (1 + (1 − earnings visibility)), premium capped near +30%How to interpret it
Starts from a no-growth P/E, adds points for earnings growth and dividends to set a basic P/E, then adjusts for business risk, financial risk and earnings visibility, turning qualitative quality into an explainable fair P/E.
The output should be read as a scenario or decision aid, not as a guaranteed price target. Compare it with at least one method based on different economic assumptions.
Practical workflow
- Normalize the latest public financial and operating data.
- Choose assumptions that match the company's economics and accounting structure.
- Calculate conservative, base and optimistic cases where the method permits.
- Compare the result with market pricing and an independent valuation method.
- Document the assumptions that drive the largest changes in value.
Key limitation
The three risk scores are judgmental and require evidence; not suitable for financials or loss-makers.
How Stockinsky uses it
Stockinsky uses this framework only when the company type and available data support it. Professional valuations expose assumptions, sources and warnings instead of presenting false precision.