Discounted EPS GAP_RSP Value Formula
(1)
:: Formulation ::
.
GAP
= Growth Appreciation Period
= CICC
.
RSP
= ROIC Spread Period
= ROIC - CICC
.
CICC Factor
= Clean Invested Capital Cost Factor
=
{
[1 + 10Y Treasury Notes Yield Ratio]
×
[1 + D/E × (1 + Prime_Ratio + Spread Ratio)]
÷
[1 + D/E]
}
.
CICC Ratio
= CICC Factor - 1
.
CICC
= 100 × CICC Ratio
.
Ggap Factor (with ÷2 equivalent to 50% MOS)
= Growth During GAP Factor
= 1 + ROIC Ratio × (1 - DPS/EPS) ÷ 2
.
(2)
:: Formula ::
Discounted EPS GAP_RSP Value
= Discounted GAP Value + Discounted RSP Value
=
EPS × (Ggap Factor ÷ CICC Factor)×(1-(Ggap Factor ÷ CICC Factor)^gap)÷(1-Ggap Factor ÷ CICC Factor)
+
EPS × (1÷CICC Factor)×(1-(1÷CICC Factor)^rsp)÷(1-1÷CICC Factor)
=
EPS
×
[
(Ggap Factor ÷ CICC Factor)×(1-(Ggap Factor ÷ CICC Factor)^gap)÷(1-Ggap Factor ÷ CICC Factor)
+
(1÷CICC Factor)×(1-(1÷CICC Factor)^rsp)÷(1-1÷CICC Factor)
]
.
(3)
:: Case Study ::
.
PDD
(Financial.2025.Sep.Q3.TTM)
.
EPS = 10.289979567
.
ROIC = 25.4354775147
.
CICC Factor
= Clean Invested Capital Cost Factor
=
{
[1 + 10Y Treasury Notes Yield Ratio]
×
[1 + D/E × (1 + Prime_Ratio + Spread Ratio)]
÷
[1 + D/E]
}
= 1.04716×(1+0.027270204×[1+0.07+0.03])÷(1+0.027270204)
= 1.0499398204
.
CICC Ratio
= CICC Factor - 1
= 0.0499398204
.
CICC
= 100 × CICC Ratio
= 4.99398204
.
Ggap Factor (with ÷2 equivalent to 50% MOS)
= 1 + ROIC Ratio × (1 - DPS/EPS) ÷ 2
= 1 + 0.254354775147 × (1 - 0/10.289979567) ÷ 2
= 1.1271773876
.
GAP
= CICC
= 4.99398204
.
RSP
= ROIC - CICC
= 25.4354775147 - 4.99398204
= 20.4414954747
.
Discounted EPS GAP_RSP Value
=
EPS
×
[
(Ggap Factor ÷ CICC Factor)×(1-(Ggap Factor ÷ CICC Factor)^gap)÷(1-Ggap Factor ÷ CICC Factor)
+
(1÷CICC Factor)×(1-(1÷CICC Factor)^rsp)÷(1-1÷CICC Factor)
]
=
10.289979567
×
[
(1.1271773876÷1.0499398204)×(1-(1.1271773876÷1.0499398204)^4.99398204)÷(1-1.1271773876÷1.0499398204)
+
(1÷1.0499398204)×(1-(1÷1.0499398204)^20.4414954747)÷(1-1÷1.0499398204)
]
= USD 193.8461958361
.
Remark:
Compared to Graham’s Overvalued Formula, EPS×(7+2G), which is rational?
.
Reference 1 :
https://www.newconstructs.com/education-growth-appreciation-period/
.
Reference 2 :