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Lowe's And The Fallacy Of Relative Valuation

Aside from not valuing the unique characteristics of a company at the exact moment in time one is valuing it (more on this in the article), another problem with using relative valuation techniques such as comparing PE ratios is the issue that arises when "comps" themselves become overpriced. We think this is the situation currently facing Lowe's (NYSE:LOW) and Home Depot (NYSE:HD). The market is using the multiples of one to justify the multiples of the other and vice versa, but both are overpriced. Relative valuation falls short in this regard, and can lead to valuation pitfalls. Investors are taking on too much risk owning a home-improvement retailer so far into the economic recovery, in our view. Read more