Evidence of the Explanatory and Predictive Power of SIRRIPA in Equity Valuation: Why Dynamic, Return-Based Approaches Outperform Static Multiples

This article presents evidence of the explanatory and predictive power of the Stock Internal Rate of Return Including Price Appreciation (SIRRIPA), derived from the Potential Payback Period (PPP), as a unified framework for equity valuation. Unlike traditional valuation tools such as the P/E ratio, PEG, or Earnings Yield—which are static, incomplete, and often misleading—SIRRIPA integrates time, earnings growth, discounting, and risk into a closed, internally consistent system expressed directly in return space. The article shows that the same structural logic that explains persistent high valuations, sectoral anomalies, valuation under negative earnings, sharp reactions to earnings surprises, interest-rate sensitivity, and global valuation dispersion also produces falsifiable, ex-ante predictions. These predictions have been empirically validated across individual stocks, market indices, and national equity markets during 2024–2025. Despite its conceptual and operational power, SIRRIPA requires only three widely available inputs for implementation: the P/E ratio, the projected earnings growth rate, and the risk-free interest rate used as the valuation benchmark, making it both theoretically robust and practically accessible for investors and analysts.