Skip to main content
No. of Recommendations: 0
> I don't think a decade is nearly enough time to evaluate P/E movement.

That might be true. But generally speaking, a company's avg P/E doesn't rise over time - it either stays the same or declines if growth is declining. Thus, looking at just the last 10 years is likely going to give me a conservative P/E estimate - which is primarily what I'm interested in. A conservative P/E would result in a conservative future stock price computation, and a conservative computation of current sticker price as per Rule#1 method.

That said, it is certainly good to look at more data. But given that I don't know of any free Internet sites that provide P/E ratios for longer than a decade, and I'm not particularly enthusiastic about paying extra for this information, I'll just stick to what the free sites provide.

> 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.

Agreed. Rule#1 achieves this in a slightly different way. It advises to
estimate future EPS growth as the minimum of the equity growth and analyst projected growth. I think if the current EPS CAGR is low, it'll possibly be reflected in the equity growth, and so you'll only estimate future stock prices based on this conservative equity growth.

- Mohit
Print the post  



The 2009 BMW Method Conference has been cancelled, due to minimum attendance numbers not being met. We hope to continue the annual BMW Method Conference tradition next fall.

Learn about the first four conferences on the BMW Method Website.

The BMW Method FAQ

BMW Method Website
Annual Conference Videos and Other Resources & Services
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.