I found the other FAST Graphs lines and metrics fairly easy to understand EXCEPT this one. This now makes much more sense. However, why wouldn't you simply rely on the average multiple the market has applied to a stock instead of these formulas?
Other remaining questions:
- I guess I need to read the Graham-Dodd book to understand the rationale for using a 15 multiple for slow growth. Would be nice to hear a short explanation.
- Don't quite understand the third formula for companies that are neither high or low growth.
Paul,
The primary valuation reference line is the orange line on the graph which is produced based on three widely accepted formulas for valuing a business. F.A.S.T. Graphs™ automatically utilizes the appropriate formula which is driven by the earnings growth rates achieved by the company over whatever timeframe is being drawn. A more detailed explanation for: GDF, P/E=G and GDF…P/E=G.” or click here: https://fastgraphs.com/pdf/EarningsCalculations.pdf
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