Stock Market Price Earning (PE) Ratio

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We use PE ratio (Price per Earning) to gauge whether the market is over value or under value. This information is helpful because it gives us an idea whether we should go long or go short with the market.

As a rule of thumb:

  •  PE = 15 is considered at fair value.
  • PE < 15 is considered under value.
  • PE > 15 is considered over value.

Summary of Major Stock Market Indices PE Ratio.

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Dapai International Intrinsic Value

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Discounted Cash Flow Model

  • FY2009 Net Operating Cash Flow = S$75.82 Million
  • Discount Rate = 6%
  • Number of Shares Outstanding = 992.3 Million
  • Intrinsic Value
    • Best Case @15% Annual Growth Rate = $1.23
    • Median Case @ 10% Moderate Growth Rate = $0.94
    • Worst Case @ 0% Growth for the next 10 years = $0.56

Discounted EPS Model

  • Rolling EPS = S$0.06459
  • Discount Rate = 6%
  • Intrinsic Value
    • Best Case @15% Annual Growth Rate = $1.04
    • Median Case @ 10% Moderate Growth Rate = $0.80
    • Worst Case @ 0% Growth for the next 10 years = $0.48

 

PE Model

  • Use PE @ 15 as fair value
  • Intrinsic Value = $0.97

 

PEG Ratio

  • Current Price = $0.245
  • Current Rolling PE = 3.79
  • PEG Ratio @ 15% Growth = 0.25 (<< 1) Super Under Value
  • PEG Ratio @ 10% Growth = 0.38 (<< 1) Super Under Value

 

Summary

  • Using MOST CONSERVATIVE Intrinsic Value calculation (ie. 0% Growth for the next 10 years), IV = $0.48 (49% Discount to current price of $0.245)
  • Using a more reasonable 10% Growth Rate for the next 10 years, IV = $0.80 (70% Discount to current price of $0.245)

A potential Multibagger penny stock? You decide……

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