P/E (5Y Geometric Mean), Opportunity Multiple, Price (Geometric Mean) & Opportunity Cost — PDD Case Study
Subject : P/E (5Y Geometric Mean), Opportunity Multiple, Price (Geometric Mean) & Opportunity Cost — PDD Case Study
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P/E (5Y Geometric Mean)
= Opportunity Multiple
= 5Y Geometric Mean Total Assets
= 100 × (Multiplication of Last 5 Years Net Income ÷ Multiplication of Last 5 Years Total Assets)^(1÷5)
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Price (Geometric Mean)
= P/E (Geometric Mean) × EPS (TTM)
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Opportunity Cost
= Current Cost of A Dollar Of Opportunity
= Current Quoted P/E ÷ Opportunity Multiple
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Case Study
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PDD
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FY 2025
GAAP
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EPS (TTM)
= USD 9.4383119419
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Metric data are retrieved from Tradingview
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P/E (Geometric Mean)
= Opportunity Multiple
= 5Y Geometric Mean Total Assets
= 100 × (Multiplication of Last 5 Years Net Income ÷ Multiplication of Last 5 Years Total Assets)^(1÷5)
= 100×((13.61×15.62×8.48×4.68×1.20)÷(90.16×69.19×49.08×34.11×28.43))^(1÷5)
= 12.7805148082
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Price (Geometric Mean)
= P/E (Geometric Mean) × EPSgaap (TTM)
= 12.7805148082 × 9.4383119419
= USD 120.6264855379
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Current Stock Price = USD 94.52
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Opportunity Cost
= Current Quoted P/E ÷ Opportunity Multiple
= (94.52/9.4383119419) ÷ 12.7805148082
= USD 0.7835758422
= Cost of A Dollar Of Opportunity
= $ 0.7835758422 for A Dollar Of Opportunity
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Notes :
You may also work it out for the Geometric Mean of the number of years that you think is proper.
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Some argue that ROIC is a better ratio than ROA.
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Reminder :
P/E (Geometric Mean) ≠ P/E (Intrinsic)
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Generally,
Forecasted Forward Growth
= ROIC × Forecasted Forward Reinvestment Ratio
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Assuming Forward Reinvestment Ratio < 1, then Forecasted Forward Growth < ROIC.
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Since ROA < ROIC, we may assume that Forecasted Forward Growth ≤ ROA.
Therefore, I prefer to adopt ROA to deduce as logical and reasonable P/E (Geometric Mean).