justifiedTrailingPE: Calculates Justified Trailing P/E Based on the Gordon Growth...

In stockAnalyst: Equity Valuation using Methods of Fundamental Analysis

Calculates Justified Trailing P/E Based on the Gordon Growth Model.

Description

The price-to-earnings ratio (P/E) is one of the most widely recognized valuation indicator and is familiar to readers of newspaper financial tables and institutional research reports. Using the Gordon growth model, an expression for P/E in terms of the fundamentals can be developed. Because P/E is so widely recognized, this method may be an effective way to communicate the analysis. Leading and trailing justified P/E expressions can be developed from the Gordon growth model. Assuming that the model can be applied to valuation of a particular stock, the dividend payout ratio is considered fixed. In trailing P/E, current price is divided by trailing (current year) earnings (Jerald E. Pinto, 2020).

Usage

justifiedTrailingPE(rCAPM, payoutRatio, g)

Arguments

rCAPM	A number.
payoutRatio	A number.
g	A number.

Details

According to information provided by Jerald E. Pinto (2020), the method justifiedTrailingPE is developed for computing Justified Trailing P/E Based on the Gordon Growth Model for the values passed to its three arguments. Here, rCAPM is required rate of return based on CAPM (Capital Asset Pricing Model), payoutRatio is payout ration and g is dividend growth rate.

Value

Input values to three arguments rCAPM , payoutRatio and g.

Author(s)

MaheshP Kumar, [e-mail]

References

Pinto, J. E. (2020). Equity Asset Valuation (4th ed.). Wiley Professional Development (P&T). https://bookshelf.vitalsource.com/books/9781119628194

Examples

justifiedTrailingPE(rCAPM=0.09,payoutRatio=0.32,g=0.07)

stockAnalyst documentation built on Sept. 13, 2022, 5:07 p.m.