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Step 2: Valuation

Gauging the expectations built into a stock's current price and determining buy and sell target prices are the linchpins of value investing. The GARP (growth at a reasonable price) strategy does not apply to the value analysis.

Implied Growth

Table 5-1 in Chapter 5 identifies the long-term earnings growth rate implied by a stock's P/E ratio. Value candidates should be priced at a minimum 50 percent discount to their normalized growth rates.


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