2. The estimated economic value (EEV)

 How to calculate a stock's EEV?

The EPS (Earnings per share).

The PER (Price-Earnings Ratio) or P/E. It is a kind of inverted rate of return
(
Price / EPS).

Well, now comes the EEV / Estimated Economic Value.

It takes into account

The projected EPS in 5 years (EPS 5)

Multiplied by - not the present P/E - but a "primary" P/E (*).

 EEV = EPS 5  x  primary P/E + 5  x  (current) dividend

(*) The primary PER (= primary P/E) is shown in the table below.

It results from a 5-year actualized (**) calculation method, using present
and historical
rates of interest and inflation.

(**) Actualized means based on compound rates and discounting calculation
tools
...)

that 5 year delay.

Except specific cases, let us not complicate our life by discounting those future
dividends: let us reckon 5 times the presently known dividend.

 Primary P/E table

 Horizontal scale: inflation/deflation rate % Vertical scale: 5-10 years bonds gross interest rate % At the crossing: primary PER - 2 -1 0 1 2 3 4 5 6 7 8 9 10 14,9 16,7 0 18,8 21,4 24,8 29,5 12,9 14,2 1 15,9 17,8 20,3 23,6 27,9 11,3 12,3 2 13,6 15,1 17,0 19,3 21,4 26,4 9,9 10,8 3 11,8 13,0 14,4 16,2 18,4 21,2 25,0 8,7 9,5 4 10,3 11,2 12,4 13,7 15,4 17,5 20,2 23,7 8,4 5 9,0 9,8 10,7 11,8 13,1 14,7 16,7 19,2 22,5 27,1 6 9,4 10,3 11,3 12,5 14,0 15,9 18,2 21,4 25,7 7 9,0 9,8 10,8 12,0 13,4 15,1 17,4 20,3 8 8,6 9,4 10,3 11,4 12,8 14,4 16,5 9 8,3 9,0 9,9 10,9 12,2 13,8 10 7,9 8,6 9,5 10,4 11,6 11 7,6 8,3 9,1 10,0 12 6,7 7,3 7,9 8,7 13 6,5 7,0 7,6 14 6,2 6,7 15 5,9 Beware, in case of economic disorder, rates may be abysmal or Himalayan. They give surrealistic primary PER (i.e. <1 or >50). Such rates are unstable, thus desultory. That is why some boxes in the table are censored (empty).
 Calculating the EEV: an example

See here a calculation example of a stock VEE, in Euros
(Note: you can also use the instant valuation tool with your own data)

 Current EPS (Earnings per share)   = 2,80 Projected EPS growth in the next 5 years (per year):     thus the EPS will be multiplied in one year by 1,08,         and in 5 years by 1,08 x 1,08 x 1,08 x 1,08 x 1,08 (*) = 8% 1,4 EPS 5 (projected EPS in 5 years) = 2,80 x 1,47  = 4,10 Primary PER: with a 2 % inflation rate and 5 % long term interest rate, our above primary PER table gives a coefficient equal to (rounded): .11 Current dividend: 1,20 EPS 5 (projected earnings per share in 5 years) x "Primary" PER coefficient 4,10    x  11 . 45 Current gross dividend x number of years 1,20    x  5 .    6 Total = EEV / Estimated economic value 51
(*) Those interested can look at the compound rates / present value calculations article

After looking at the economic value, now it is time to salt and pepper it
withthe behavioral elements.
This is the role of the image coefficient

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