Posted by inwest88 > 2014-01-26 20:08 | Report Abuse

# kcchongnz - it's amazing that you keep providing and educating the people with so many aspects of stock trading. The way you analyse does help us, if not me, to have a better understanding. Here's wishing you and you r family a prosperous and grand Chinese New Year.

Posted by AyamTua > 2014-01-26 21:23 | Report Abuse

while the rest of the world talks about this up, that up only
kcchongnz and few i noticed keep posting quality educational posts worthy to follow and most of the time he is right - dont know how to trade? want to make money? follow and read everything about he posts! - my honest reviews.

Posted by 爱丽斯 梦幻世界 > 2014-01-26 21:52 | Report Abuse

Yes, agree with both of u.

Posted by Horsefield > 2014-01-28 00:28 | Report Abuse

Hi kcchongnz, as higher growth firm is always deserved for higher PE.. But question is how we get to know the fair PE of a firm with particular growth rate?

From below link ,
http://klse.i3investor.com/blogs/kianweiaritcles/36515.jsp
B. Graham suggest that typical PE ratio for firm with 0% growth is around 8 to 8.5.

Different industry would have different PE ratio, eg >20 for oil & gas. However, how can we justified the PE ratio based on growth rate? by DCF method?

I have done some rough calculation by using DCF method with your above example by assuming
a. 10 sen earning a year is equal to FCF generated
b. 9% discount rate (for well-known and stable outlook firm)
c. terminal growth rate after 5th year: 3%

Earnings Growth 5% 10% 15% 20% 25% 30%
IV based on DCF 1.60 1.97 2.41 2.93 3.53 4.24
PER 16.0 19.7 24.1 29.3 35.3 42.4

please advise. tq

Posted by kcchongnz > 2014-01-28 03:59 | Report Abuse

A higher growth company deserves a higher PE, that is logical and intuition. That is also according to the very basic principle of “The value of a firm is the sum of expected future cash flows generated by the firm discounted to the present value”

A firm with higher growth will have more earnings each year going forward, and assuming this earnings are cash flow, the present value will be higher than one of low growth company.

However, the actual PE a company is worth is all theoritical (though logical). It depends on industries as you have rightly pointed out, the market sentiment prevailing, the risks etc and many other factors. I don't think there should be an exact answer to your question. Finance is an art, not science.

Posted by kcchongnz > 2014-04-02 07:37 | Report Abuse

Paying any price for a growth company? Read this:

http://www.oldschoolvalue.com/blog/investing-perspective/microsoft-growth/