Think what reasonable terminal (exit) PE - What would be the PE assigned by the market at the end of your holding period?
Calculate TTM PE after normalizing TTM earnings for sustainable OPM. Using normalized TTM PE, calculate the PE for the terminal year after compounding the earnings at expected growth rate and discounting the earnings at your expected rate of return.
A gap b/w ‘reasonable terminal (exit) PE’ and ‘Calculated terminal PE’ will help to make a judgement about current valuation.
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