Hi All, page-35

For what it is worth, here are some notes I made in 1990 from something I read.

Big baggers
P/E = years to get your money back
A 20 grower at P/E 20 is much better than a 10% grower with P/E 10.
e.g. Company A, P/E 20, growing at 20% earns $1 in year one and sells for $20 then. In 10 years its earnings, compounding at 20% = $6.19 so then it sells for (20 x $6.19) $123.80. It is a SIX bagger.
Company B, P/E 10, growing at 10% earns $1 in year one and sells for $10 then. In 10 years its earnings, compounding at 10% = $2.59 so then it sells for (10 x $2.59) $25.90. It is a only a THREE bagger.
After 10 years, even if P/E of A reduces to 15 because people do not expect 20% growth to continue, it will sell at $92.85.