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To: llwk7051@aol.com who wrote (5433)	4/24/1999 9:02:00 AM
From: Chuzzlewit	Read Replies (1) \| Respond to of 7342

llwk, there are some problems with referenced link that I think you need to understand. If you have a basket of stocks that are fairly valued with stable growth you can expect the the stock price appreciation rate to equal the growth in eps. That's no big deal, and has nothing to do with the details of the baseline valuation metric. But the problem with that approach is that it fails to take into account risk. Clearly, high growth stocks are riskier than their lower growth brethren. That means that there must be a "premium" attached to those stocks to take into account their riskiness. You will notice that the poster simply assumed that the probability of the three hypotheticals achieving expected results were the same. But by using a PEG approach the EV (expected value) of the investments are the same and this supposedly reflects the greater relative riskiness of the higher growth stocks. I have been critical of the PEG approach for several reasons. One is that it doesn't reflect the risk of the position, but simply assumes that risk and expected growth are directly related. Second, it ignores interest rates as a factor in determining stock valuation. This is a much more serious flaw. To get around the interest rate issue I have employed what I call CNPEG (Chuzzlewit's Normalized PEG). It works like this: you calculate the YPEG for the stock in question. The YPEG is the leading PE divided by the consensus long-term growth rate. Next, you calculate the YPEG for the S&P500. Finally, you divide the stock's YPEG y the market's YPEG to give you the CNPEG. I interpret this number as the relative cost of growth. However, I am unhappy with the final number because it doesn't capture the relative risk. At this point I have no good surrogate for risk, although I am toying with beta -- i.e., multiply the CNPEG by the beta of the stock to attempt to capture risk in the price. TTFN, CTC

To: llwk7051@aol.com who wrote (5433)	4/26/1999 6:20:00 PM
From: Rafael Silva	Read Replies (1) \| Respond to of 7342

E-mail received from Jim Jubacks: I didn't use trailing earnings. I used projected earnings for 1999--one quarter in and three to go. And then I tried to figure out what a reasonable PE would be on those earnings. You seem to object to using the current trailing PE as the basis for figuring out what the trailing PE would be in January 2000 but that's not especially relevant. If you use a forward pe on forward estimates, you still have the same problem. What is the appropriate forward PE to use? I think the issue comes down to how you want to pay for the management's projection of earnings. I did factor what management said into my attempt to estimate a PE. I guess I just didn't find the promise to be worth as much as some other folks did. -----Original Message----- From: Rafael Silva [mailto:r.silva@codetel.net.do] Sent: Sunday, April 25, 1999 10:56 AM To: Jim Jubak Subject: NSN Article Figuring out what that stock is worth To: Rafael <https://www.siliconinvestor.com/profile.aspx?userid=7226085> Silva ( 5432 <https://www.siliconinvestor.com/readmsg.aspx?msgid=9116293> ) From: John <https://www.siliconinvestor.com/profile.aspx?userid=908372> Carragher Saturday, Apr 24 1999 7:29AM ET Reply # of 5449 I'm surprised that Jubak used trailing earnings for his calculations. He knows better!!!!!!!!! He also doesn't take into consideration management's statement of future growth. Based on the history and credibility of them I find it strange he wouldn't factor some of it into his numbers. After all he is trying to come up with some estimate of future worth. John ps Perhaps you should invite Jubak to visit our thread