this thread is about fair value and there are heaps of ways of working it out.
average PE
Peter lynch's PEG
Benjamin grahams book value
discounted cashflow etc
Rodger Montgomery's method is just one of many.
Plug in the numbers for ROE, expected rate of return and book value and viola!!!
you get $24.82
3 or 4 bucks above where we are now.
Maybe just maybe that is the actual intrinsic value of the stock.
it seems right to me.
that is all I am putting out there. the possibility that if you use this calculation we might actually have uncovered fair value. exciting stuff.
By the way the calculation is actually not Rodger Montgomery's calculation. He got it from a fellow called Richard Simmons who wrote a book called "Buffett step by step" and then modified it.
MFG Fair Value, page-122
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