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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (4371)7/2/1998 3:32:00 PM
From: MarkM  Read Replies (1) of 78748
 
I have a question "el basico neophyto grande".

I am learning the ABC's of valuation. I understand that a GPE ratio (Growth to P/E ratio) of higher than 1 is good, since growth is greater than the P/E. Reading the Motley Fool I see they have a Fool ratio which is actually the inverse of a GPE, (it is the P/E ratio divided by the annualized growth).

Can anyone explain to me why people consider a company to be fairly valued when the growth is the same as the P/E? Like, why not 5 times P/E? Why not 1.9862837564 times P/E? Why not the square root of PI times Bill Clinton?

I can see that the more annualized growth then you should expect a higher P/E, since the company is worth more. But why say that the P/E should be equal to the growth?

Any SIMPLE explanations? Thanks in advance!
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