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> Could I ask the source of your historical P/E multiples? Do you have a
> subscription to ValueLine or do you go to the library and get the
> information from ValueLine? Or do you use some other source?

I typically use bigcharts.com which can plot the P/E ratio for the last
decade.


- Mohit


I don't think a decade is nearly enough time to evaluate P/E movement. Just look at WMT. After about 5 minutes with an SRC 35-year chart book, I think anyone would agree with me on this.

In general, and I think this is a really persistent truth, a 15 P/E is very cheap for a steady, mature company. A good worst-case estimate for a BMWm pick trading near a 15 P/E against steady EPS growth is that the company will return its current CAGR. A good target estimate for the same company is that it will return to the P/E at which it last traded on its average CAGR line.

Therefore, you can calculate that P/E, estimate EPS based on historical EPS CAGR, and come up with a future target price. But buy the stock or not based on whether you'd be willing to hold the stock x years from now if it continues to trade on its current EPS CAGR.

Again, consider WMT. Earnings are growing at about 8%, it's near a 15 P/E, so a reasonable worst case is 8% price CAGR plus a couple percent yield (not too bad for a worst case scenario that doesn't even account for yield growth) against the possibility of twice that return for a 3-year return to average CAGR.

John
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