There are many different ways of assembling a discounted cash flow of future earnings. Sometimes you will see an analyst use one growth rate for five or ten years and then a “terminal” growth rate going out 30 years.

I would rather keep control of that “terminal” growth. I assume that I sell the company after a certain length of time. To determine the value upon sale, I assume here that I can sell Oyo for 1.5 times its growth rate. So I’m applying 1.5 times 12%, then multiplying this by 100. This then equals the P/E ratio of 18. I multiply year 10 earnings by 18 to get a market capitalization. Above I am working in per share amounts, so I multiply year 10 earnings per share by 18. This then becomes added to year 10 of the cash flows. I discount the cash flows back at 10% for $95.70 per share.

The $178.30 value is not discounted. So it is possible that Oyo would be worth $178 in 2018. Still you wouldn’t pay $178 today, so you discount it back. I hope that makes some sense.

Nice Analysis! I am trying to understand you mean by a reversionary PEG of 1.5 times growth rate and how do you come up with Revesion value of 178.30 $. Your answer is appreciated.

Thanks