The Graham & Dodd P/E Matrix

The Graham & Dodd P/E Matrix by Redfield, Blonsky & Co. Based on his observations of stock over the years, Benjamin Graham developed a stock valuation model that allows for future growth. Graham observed that the average no-growth stock sold at 8.5 times earnings, and that price-earnings ratios increased by twice the rate of earnings growth. This led to the earnings multiplier: [buffett] P/E = 8.5 + 2G where G is the rate of earnings growth, stated as a percentage. The original formulation was made at a time when there was very little inflation, and growth could be assumed to…