Hi,
I was wondering why in the enterprising price formula we don't take an average of the last 3 eps, as for the defensive price formula.
Thanks in advance for your answer,
Giacomo
Submitted by Jack. Created on Tuesday 28th February 2023. Updated on Tuesday 28th February 2023.
Following Graham
Dear Jack,
Thank you for your forum post!
That's a really good question. The reason is simply that Graham did not specify such an averaging requirement for Enterprising grade stocks, perhaps because the multiplier requirement for them was already very conservative / aggressive.
GrahamValue tries to follow Graham to the letter as far as possible, the only exception being the P/E and P/B ratio combination for Enterprising grade stocks. This allows for the adjusting Intrinsic Values for Bond Yields as explained in the video below, similar to Defensive grade stocks.
Of course, the averaging requirement could have been included too; since the said ratio combination is modeled after the Defensive grade. The fact that it was not, was simply to avoid deviations unless they were actually required for following Graham's own principles; like the one above was.
Thank you again for your forum post!
Bond Yields affect Intrinsic Values