December 31, 2004 Of course if you use the average P/E ratio of the last 5 years that included the go-go irrational era of inflated values then you are liable to be disapointed. Look at most SSGs and you will find a major swing between the historical average high P/E and the historical average low P/E. It is questionable in my mind to blindly assign the resultant average P/E ratio as a value that one can expect is normal. Suppose the P/E ratio is declining over the 5 year period. Is it then rational to expect the average of a declining value as an expectation for a normal value? I think not and would much prefer, in such cases, to use judgment as to what is likely to be a reasonable normal P/E ratio for the future., I would look at an appropriate value of PEG when making such a judgment. Ralph Seger
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