Estimate fair PE for stock with this simple calculator, Google Spread sheets link included!

How much should pay for a stock? That is the million dollar question(or more 🙂 )

We of course have PE value which basically tells us how many years it will take for stock to earn the money it costs today. The catch is that that assumes there is no growth. How much x amount of growth will give room for higher PE then? There is no one right answer for this. I stumbled upon one simple calculator which was in Finnish investment book “Sijoita kuin Guru” which translates to “Invest like a Guru”. The book itself is great introduction to investments strategies of different investment Gurus like Warren Buffet, Peter lynch, Philip A. Fisher to name a few.  In the last chapter our local Finnish Guru investor Jukka Oksaharju introduces reader to Katsenelson’s  absolute PE value. Vitaliy N. Katsenelson, is the author of Active Value Investing (Wiley) and The Little Book of Sideways Markets(Wiley) and runs website


The calculator has following components:

Base PE : 8 (PE you accept with no growth)

Yearly growth: Earnings growth average from three or so years

Dividend yield: You know this one 🙂

Operative risk: 0.85 – 1.25 (use your guts to evaluate how risky the core business is. You can use for example yearly earnings variability for this)

Financing risk: 0.85 – 1.25 (strong or weak balance sheet, high or low operative cash flow)

Forecasting risk: 0.85 – 1.25 (how well analyst estimate the company earning and also company own guidance)


Formula is:

Absolute PE= [Base PE+earnings growth*earnings factor+ dividend yield]*[1+(1-Operative risk)]*[1+(1-Financing risk)]*[1+(1-Forecasting risk)]

earnings factor=0.65 if earnings growth is 16% below  and 0.5 if earnings growth is over 16%


Now let’s run the number on actual stock…. Visa, one of my favourites

Four year average growth: 14.8

Operative risk: 0.9 (using credit card is very much common need but could be replaced by some new tech someday)

Financing risk:0.85 (huge cash flow)

Forecasting risk: 0.85 (Estimates are nearly bang on)


Result is 26.65

Visa now trades at 29 PE. Visa traded at 26.6 PE last time 30th of December 2016 and before that 30th of June 2016. Whit this you could say Visa is a little bit over valued but not by crazy much which would warrant a sale for me.

Link to Google Spread sheets documents (make a copy first to use)

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