Hi folks,
This formula has cropped up in a couple of value investing books
V* = EPS X (8.5+2g) X 4.4 / Y
It is essentially used to determine value,
Has anyone used it, ran any tests with it, found it to be any use?
Regards
Extramild
Benjamin Graham Formula
The original formula from Security Analysis is
where V is the intrinsic value, EPS is the trailing 12 month EPS, 8.5 is the PE ratio of a stock with 0% growth and g being the growth rate for the next 7-10 years.
However, this formula was later revised as Graham included a required rate of return.
The formula is essentially the same except the number 4.4 is what Graham determined to be his minimum required rate of return. At the time of around 1962 when Graham was publicizing his works, the risk free interest rate was 4.4% but to adjust to the present, we divide this number by today’s AAA corporate bond rate, represented by Y in the formula above.
3 A growth rate of 10% - i don't expect HP to grow at 10%.
And why not ?? I'd say they could easily surpass their present price from the low they are at the moment
And why not ?? I'd say they could easily surpass their present price from the low they are at the moment
Anyway back to main point what do you think of the formula?
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