|The Holt formula|
Around the formula...
The Holt formula (1962) is used for fast-growing companies with a high P/E. After a fast-growth period, such companies will move to the status of mature companies with a lower P/E.
The Holt formula enables to determine the length of the exceptional growth period implicitely contained in the stock price. The potential investor compares the result with his own forecasts and adjust them if necesseray.
Using the Holt formula, we can find n, which is the exceptional growth period length implicitly contained in the stock price :
P/E, g, DPS and V refer to the stock P/E, growth rate, DPS and value respectively, whereas P/Em, gm, DPSm and Vm refer to the market corresponding data.