CSL Ltd. (a biotech company) has a substantially higher P/E ratio than the ASX200 index. Consider the P/E ratio as a short-hand version of DCF valuation model,

 

a) Identify the three fundamental determinants of P/E ratio and explain the relation of each determinant to valuation?

 

b) Does this higher P/E ratio indicate that CSL is traded at a premium or discount relative to the market? Explain why this is the case based on perspective of fundamental determinants of P/E ratio identified?

 

c) This difference in the P/E ratio increased after the Covid breakout. What does it tell us about the market's expectations?