Intrinsic Value
Formula 1
Intrinsic Value = EPS x (8.5 + 2g)
EPS = Earning Per Share (trailing 12 months)
8.5 = PE of a stock @ 0% growth rate
g = EPS growth rate (for next decade)
Formula 2
Intrinsic Value = EPS x (8.5 + 2g) x (4.4/Y)
1962 : US corporate bond yield was 4.4%
Y : current corporate bond yield.
Formula 3
Intrinsic Value = EPS x (7 + g) x (4.4/Y)
* Reduced PE to 7 for conservative investors.
* Not many high growth companies during his time in 1962 ... Today, we can use 'g' for high growth companies.
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