“So a company with a P/E of 10 implies that if nothing changes, in 10 years a share owner would ‘earn’ back the price they paid for the share,” Dediu writes. “Any earnings after 10 years would be “profit” for the share owner.”
Dediu writes, “So with a company growing at 20% the “realized P/E” is 5. You realized the price of $100 in five years’ worth of earnings… Investing in Apple between 2006 to 2010 meant obtaining a payback period of less than 4.5 years, on average. In other words, regardless of what the trailing or forward P/Es getting quoted at the time, buyers actually paid for only about 4.5 years of earnings. In other words they actually bought Apple for a P/E of about 4.5.”
Much more in the full article – recommended – here.
[Thanks to MacDailyNews Reader "Dan K." for the heads up.]