Investment Recovery Time is the number of years it would take for a company's cumulative earnings (beginning at a base level of $1.00) to equal the stock's current P/E ratio, assuming that the company continues to increase its annual earnings at the projected growth rate. A Recovery Time of six years, for example, means that it would take six years for an investor to recoup the price paid now for $1 of corporate earnings (the P/E ratio).
Just like PE ratio, investors can use the Investment Recovery Time to compare the value of stocks: if one stock has a P/E twice that of another stock, all things being equal (especially the earnings growth rate), it is a less attractive investment. Basically, the smaller Investment Recovery Time is the better investment it is.
Investment Recovery Time shows the correlation between current market price and EPS. Phil Town, the author of "Rule #1" and "Payback Time"said "A payback time of ten years or less is an attractive price. The Payback Time of less than six years is very attractive. Very."
Investment Recovery Time is available in the "Value Price" section of
Stock Analyzer.