The P/E Ratio: A User's Manual
Actively Speaking Podcast
How Much Do You Need to Reinvest?
A company with a 10% return on invested capital should trade at $10, says Gordon Growth Model. But if they reinvest 50 cents of their dollar in profit, only have 50 cents left to actually pay out to the owner of the business. If you rely on the PE and peg ratio alone, how much do they need to reinvest? Where does that cash flow come from? You can come to very erroneous conclusions.
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