Assumptions to watch out for

While our conclusion would possibly prompt you to sell your LOV shares straight off, there area unit 2 necessary assumptions you must remember of. the primary is that our generation truly contains firms that area unit just like LOV. If this isn’t the case, the distinction in P/E may well be thanks to another factors. as an example, if you unknowingly compared riskier companies with LOV, then investors would naturally price LOV at the next worth since it's a less risky investment. Similarly, if you by mistake compared lower growth companies with LOV, investors would conjointly price LOV at the next worth since it's the next growth investment. each eventualities would justify why LOV contains a higher P/E ratio than its peers. The second assumption that has got to hold true is that the stocks we have a tendency to area unit scrutiny LOV to area unit fairly valued by the market. If this doesn't hold, there's an occasion that LOV’s P/E is higher as a result of companies in our generation area unit being undervalued by the market.