Answer: Statement 2 only

## Explanation **Statement 1 is incorrect:** The method of comparables based on forecasted fundamentals can indeed be used to explain valuation differences even when exact comparables are not available. Analysts often adjust for differences in fundamentals (growth rates, risk, profitability) when comparing companies, which helps explain why valuation multiples differ. **Statement 2 is correct:** The method of comparables based on forecasted fundamentals involves using a company's own forecasted fundamentals to determine what its valuation multiple should be, rather than directly comparing it with other companies. This approach uses valuation models (like the Gordon growth model) to derive justified multiples based on the company's specific fundamentals such as expected growth, required return, and payout ratios. Therefore, only Statement 2 is correct.

Author: LeetQuiz Editorial Team