why would you use a trailing PE ratio to value a business. You are buying a business or factional ownership of a business whereby you have access to the FUTURE free cashflow.......not its historical free cashflow..
Even still before you enter the valuation stage you have to work out whether it's a good business or not. Some eople have trouble doing this but the Return on capital employed can give you a good guide.......generally the higher that return the better the business and it's management are.
Businesses like Alu are rare on the Australian stock exchange.........businesses that can grow at 25% plus a year without the need for substantial additional capital are in fact rare world wide. normally at the very least for a business to grow earning year on year at 25% it would require the reinvestment of all profits back into the business and additional debt or equity funding.
Now as for a valuation.........i havent done a formal valuation of a business on the asx for probably a decade.......i dont find it necessary as we have so few good businesses to invest in and when you find a good one its pretty obvious wether its cheap expensive or fairly priced. That said the famed investor Peter Lynch used the Peg ratio.......so if a company was firstly a good business and its forward pe was lower than expected growth over the next few years he would simply buy it.
ALU has always looked expensive but it always manages to grow into itself. Would i be buying at this price......Well thankfully i dont have to answer that as i have more than enough and my entry price is significantly lower than the current price. but interestingly my entry point was at a time when people thought ALU was fully priced.
I often get asked if i would sell ALU and you never say never but great businesses are so difficult to find on the ASX that the price would have to be pretty flash.
I wish all holders good luck but honestly i dont think you will need luck with this high quality business
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