Short, Mid, Long & Present (TTM) Intrinsic Value
Warren Buffett said that SBB raises EPS could bring values to shareholders.
.
That means :
.
EPS is the current component and EPS Growth is the forward component in the Intrinsic value formula.
.
Combining both for forward looking Intrinsic Value formula:
.
Intrinsic value, P
= EPS × EPS Growth
= EPS × G
.
P/E = G
=> PEG Strategy for short term
.
Warren Buffett and Charlie Munger said in unison that Earning Growth & ROIC converge to each other in the long run, G≈ROIC (in long term).
.
P/E
= G
= ROIC
=> PEROIC Strategy for long term
.
To derive Mid Term, we may take the geometric mean between Gshort_term and ROICshort_term as they are converging to each other :
.
Mid Term Geometric Mean
= √(Gshort_term×ROICshort_term)
.
In the short term, either G > ROIC or G < ROIC, there is a sizeable gap between G and ROIC.
.
In the long term, G ≈ ROIC, they converge and are pretty close to each other.
.
Hence, we could classify the Intrinsic Value into 3 term stages :
.
Short Term Intrinsic value, P
= EPSshort_term × Gshort_term
.
Mid Term Intrinsic value, P
= EPSmid_term × √(Gshort_term×ROICshort_term)
.
Long Term Intrinsic value, P
= EPSlong_term × ROIClong_term
= EPSlong_term × Glong_term
.
Gshort_term and ROICshort_tern are less realistic.
.
Glong_term and ROIClong_tern are more uncertain due to less predictability.
.
Among the three, the converged nature of the geometric mean is more realistic.
.
What would be the Present Intrinsic value ?
.
Present (TTM) Intrinsic value
= EPSttm × √(ROICttm × Gnet_profit_ttm)
Or
Present (TTM) Intrinsic value
= EPSttm × √(ROICttm × ROAttm)
Or
Present (TTM) Intrinsic value
= EPSttm × (ROICttm × ROAttm × Gnet_profit_ttm)^(1÷3)
.
What would be the Forward Intrinsic value ?
.
Forward Intrinsic value
= EPSttm × FCP
.
where,
.
FCP
= √{ ROICttm × ROAttm × Gnet_profit_ttm Factor² ÷ ( Ginvested_capital_ttm Factor × Gtotal_asset_ttm Factor ) }