Either the input values are wrong or the variables are incomplete and the market is considering the investment taking into account the future in a different way. Sensitivity analysis is perhaps a more tugorous way of iny rigating value... EXAMPLE: Take the previous example of ABC sa, ordy consider the uncertainty around the estimates. Holding the other estimates as in the example (the 12 per cent return), what growth rate would support the actual price of 0.50 ? (Answer: 0.018 or 1.8% * .) What interest rate would justify that price (keeping the growth rate at 3 per cent)? Answer: 0.133 of 13.3%. Now, to judge whether the share is under-priced we have to consider whether the interest rate of 13.3 per cent is too high or the growth rate (remembering that it includes inflation) is too low? Or a combination of the two? Either the input values are wrong or the variables are incomplete and the market is considering the investment taking into account the future in a different way. Sensitivity analysis is perhaps a more tugorous way of iny rigating value... EXAMPLE: Take the previous example of ABC sa, ordy consider the uncertainty around the estimates. Holding the other estimates as in the example (the 12 per cent return), what growth rate would support the actual price of 0.50 ? (Answer: 0.018 or 1.8% * .) What interest rate would justify that price (keeping the growth rate at 3 per cent)? Answer: 0.133 of 13.3%. Now, to judge whether the share is under-priced we have to consider whether the interest rate of 13.3 per cent is too high or the growth rate (remembering that it includes inflation) is too low? Or a combination of the two