PE 5

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Definition

PE 5 is the current stock price divided by the average of the last 5 years' earnings per share.

Metrics of this nature were originally popularized by Benjamin Graham, often called the father of value investing. He used this measurement because it is less sensitive to short term economic fluctuations or accounting distortions which can affect a single year's earnings and PE ratio.

Hence, for stable businesses with long histories, PE 5 gives a better picture of price relative to historical earning power than a standard 1 year PE ratio.

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