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What does a high P / E imply about growth? Assume a P / E of a stock is 4 1 . 5 and that
What does a high PE imply about growth?
Assume a PE of a stock is and that the PE of the market is This is approximately what the market and Tesla are now if we use today's price and the latest month earnings per share for both.
If we completely ignore time value of money and the fact that the market pays dividends and buys back shares which Tesla does not, how much does Tesla's ANNUAL growth have to be to justify its PE and assuming its aboveaverage growth lasts years?
At the end of the aboveaverage growth period, assume that the PE of Tesla is reflecting the same growth rate and risk as the market.
Note: Enter your answer with three decimals. For instance, if your answer is enter
Hints:
For the PE of Tesla to fall to the market's PE of Tesla's earnings must rise a lot. You have to determine how much Tesla's earnings rise must rise. Once you have this information, you have to determine how much it rises each year to get to that point. To do so use the formula earnings at period N $ of earnings today # of years of above average growth
I don't give you the current earnings of Tesla or the market, but since this is a ratio you don't need it The denominator of PE and the PE are both $ for $ of earnings for each $ or $ of price What does Tesla's earnings need to rise to for it to be a PE
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