I managed to scratch together $250 to invest. I debated what to buy. I was interested in adding to stocks I already own. I was playing around with the numbers. Since P/E (price/earnings ratio) is calculated by dividing the stock price by EPS (earnings per share), I took the EPS for each of my stocks and multiplied it by the 5 year growth estimates (to the power of five). Then given this 5 year projected EPS, I divided it into the current price to come up with a projected P/E. For example, Advance Auto Parts has a EPS of 2.75, and a 5 year growth estimate of 17.5 %. So 2.75*1.175**1.175*1.175*1.175*1.175=6.16 (5 year projected EPS). 61.01/6.16=9.9 (5 year projected P/E).
So given this formula I figured the 5 years projected P/E ratios.
Advance Auto Parts: 9.9
Amazon: 10.49
Cabelas: 10.29
Carnival Cruise Lines: 11.08
Dick’s Sporting Goods: 15.07
Ebay: 17.28
Lowes: 8.72
Red Robin: 13.29
Target: 7.55
The three lowest were Target, Lowes, and Advance Auto Parts. I compared them on 5 year/2 year/1 year charts, and out of the three, Advance Auto Parts performed the best. So I bought $250 worth of the Advance Auto Parts. Phew….that was a long explaination!