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DXP Enterprises, Inc. Message Board

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  • kingrichard24k kingrichard24k Oct 9, 2006 7:28 PM Flag

    Technical Take....

    how do you come up with fair value in the 50's i agree with what you said you have to be in this stock below 30 technicaly you would be foolish to trade completley out of it mabey sell some on the way up but this thing could go to 30 in a few days and you have to be in it i'm long 5000 at 23.3 ave

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    • Well, a better question, it seems, is "how do you come up with a fair value?"

      The PEG is a generally accepted measure of arriving at a fair value. A P/E divided by the 5 year expected annualized growth rate in earnings gives you the PEG. A PEG of 1.0 is believed to represent a fair value for an equity security. A PEG of 1.00 would be where the P/E is equal to the growth rate.

      If you use the 5 year earnings growth rate from the recent Stonegate report on DXP of .30 and take the 2006 projected earnings of $2.00; you get a PEG, given the current price of 25.23 of .4205. That is, the P/E would be 12.615 divided by the growth rate expressed as a whole number, or, 30 gives a PEG of .4205. To achieve a PEG of 1.00, DXP's share price would have to go to exactly $60 per share. If you use 2007 earnings, as some are doing since we are into the 4th quarter of 06 now, DXP earnings are projected at 2.51 (based on the average of Dutton and Stonegate). If you use 07 earnings, the current PEG is .335. A fair value, based on 07 earnings of 2.51 and annualized forward growth of .30, would be $75.30.

      Who knows what earnings and growth will actually be, but this is how you arrive at a fair value, according to accepted practice today.

 
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