Generally, using a price-to-earnings ratio to value common stock is most likely a:

Using a price-to-earnings (P/E) ratio to value common stock is most appropriately classified as a relative valuation approach. This method involves comparing the P/E ratio of a specific company to the P/E ratios of other companies in the same industry or to the broader market. The underlying principle is that similar companies should have similar valuations if they operate under comparable economic conditions.

The relative valuation approach allows investors to gauge whether a stock is overvalued or undervalued relative to its peers. For instance, if a company's P/E ratio is significantly lower than that of its competitors, it may indicate that the stock is undervalued, assuming all other factors are equal. Conversely, a higher P/E ratio could signal overvaluation.

In contrast, asset-based valuation focuses on the value of a firm’s assets, analyzing the company's balance sheet rather than market multiples. The discounted cash flow (DCF) valuation approach involves estimating future cash flows and discounting them to present value, emphasizing the intrinsic value based on its future income potential. Liquidation valuation estimates the value of a company’s assets if it were to be liquidated, usually resulting in a focus on tangible assets rather than earnings, which diverges from the concept of using P/E ratios based on