PE Deflator

The PE Deflator links valuation to earnings growth:

– Growth investors can see how much earnings must rise to justify today’s price.
– Value investors can see how little growth is needed to earn a solid return.

Current P/E ratio

Use the stock’s actual P/E or a similar multiple (P/FCF, EV/EBIT, etc.). Avoid forward ratios unless you know what you’re doing. Whatever metric you choose here, use the same one for Expected future P/E so you’re comparing apples to apples.

Holding period (years)

Your investment horizon. Ten years is a common default.

Expected future P/E ratio

This is a key assumption. High multiples usually drift back toward the market average (around 30 for mature tech, ~15 for weaker companies). Low multiples may rise toward fair value. Decide what’s reasonable for the stock you’re evaluating.

Desired rate of return (%)

The annual return you want. Many investors use 15% as a hurdle. Since the S&P 500 often returns ~10%, an individual investment should offer more. Enter as a whole number (e.g., 15 for 15%).

Required earnings growth rate

Based on your inputs, this is the annual earnings growth needed to hit your target return. If the P/E deflates, growth must be higher; if it expands, growth can be lower.