CLDT Chatham Lodging Trust

You can ether set your own Fair P/E multiple or use one of the automatically calculated Fair P/E multiples.

Fair P/E calculation

PE Ratio is an attempt to estimate a fair PE ratio of a stock based on its earnings and growth rate.

This formula is a modified version of the classic Graham-Dodd Formula (V= EPS x (8.5+2g)), originally developed by Benjamin Graham, to calculate the fair price of a stock based on its earnings and growth rate.

The formula we have created is an adaptation of this approach, designed to maintain a balance between simplicity and growth sensitivity.

It is calculated using the following formula:

Here’s what each part of the formula means:

g: This represents the company's average EPS (Earnings Per Share) growth rate over the past three years. When a 3-year average is not available, 1 year average is used instead. Growth is a key driver of a stock's value, and our formula directly connects growth to the Fair PE ratio.

m: This is the long term historical median PEG (Price/Earnings to Growth) ratio of the overall market. It serves as a benchmark, adjusting the Fair PE based on typical market conditions.

b: Base PE (static value set to 8). If the company's growth rate is negative, the Fair PE is set at a conservative baseline of 8. This is because declining companies generally deserve a lower PE ratio.

Fixed vs Dynamic

Fixed: The Fair PE ratio for all data points is calculated using a single, constant 3-year average EPS growth rate, determined based on the most recent period. This means that the same growth rate is applied to all historical data points. Dynamic: The Fair PE ratio for each historical data point is calculated using the trailing 3-year average EPS growth rate specific to that point in time. This means that for each data point, the corresponding 3-year trailing EPS growth rate is used, ensuring that the Fair PE ratio reflects the growth conditions that were relevant at that specific point in history.