Generalizing the P/E Ratio Through the Potential Payback Period (PPP): A Dynamic Approach to Stock Valuation

This paper introduces the Potential Payback Period (PPP) as a dynamic generalization of the traditional price-to-earnings (P/E) ratio, addressing the limitations of static valuation multiples in modern equity markets. The PPP integrates expected earnings growth and investor-required return into a unified metric that expresses the time required for an investor to recoup their initial investment. Unlike the P/E or PEG ratios, PPP remains defined even when earnings are low or negative and offers a coherent, time-based framework for valuation, screening, and return forecasting. The article formalizes the PPP model mathematically, compares it with existing valuation tools, and explores its practical implementation. Through case illustrations and applications, the paper demonstrates that PPP bridges relative and absolute valuation approaches while improving analytical rigor and usability in volatile, growth-sensitive environments. The author, who is also the originator of the PPP concept, presents this framework for the first time in academic literature.