Relating P/E to Earnings Growth

Many years ago, Benjamin Graham suggested that the Price to Earnings Ratio (P/E) or "The Multiple" was related to the growth in earnings year over year forecast for a stock. Roughly, the formula translated to

Value = Current (Normal) Earnings X (8.5 plus twice the expected annual growth rate)

This was summarized in the following table

Expected Growth Rate	0.0%	2.5%	5.0%	7.2%	10.0%	14.3%	20.0%
Growth in 10 years	0.0	28.0%	63.0%	100.0%	159.0%	280.0%	319.0%
Multiplier of current earnings	8.5	13.5	18.5	22.9	28.5	37.1	48.5

This definitely allows us to understand the kind of growth anticipated just by looking at the P/E.