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DXP Enterprises, Inc. Message Board

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  • hopeful200 hopeful200 Oct 9, 2006 10:57 PM Flag

    Technical Take....

    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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