R P Warren Quotes

Simply estimate where earnings per share (EPS) will be in 5 years from now. Slap a 15 multiple (P/E) on that number and you have a reasonable price target for the stock. Warren Buffett uses a similar trick all the time.

Many years ago, the famous investors Benjamin Graham and Warren Buffett made a lot of money using a very simple version of this strategy. They would look for a company that had net cash of $20.00 per share, and then try to buy shares of its stock for 15. In other words, they were trying to buy a dollar for 75 cents, or even less. Or they would just buy stock in a company that had a P/E of just 5 or 6.

Personally, I would not pay more than a P/E of 20 (earnings yield of 5%) for a company like Coke.