Bakery 1. Year    2. Year    3. Year   4. Year    5. Year    6. Year     7. Year      8. Year     9. Year   10. Year   TOTAL
earned      1      +     1    +       1     +    1     +      1    +    1      +     1      +      1       +     1     +      1     =    10 

If you bought bakery and paid 10 then you got your money in 10 years. 


Grocery1. Year   2. Year    3. Year   4. Year    5. Year    6. Year     7. Year      8. Year     9. Year   10. Year   TOTAL
earned     1 +         1.2   +    1.44    +  1.73  +  2.08  +     2.50  +    3      +     3.6     +    4.32   +    5.18 = 26.05

If you bought grocery and paid 26.05 then you got your money in 10 years.


Station.1. Year    2. Year    3. Year   4. Year    5. Year    6. Year     7. Year      8. Year     9. Year   10. Year   TOTAL
earned      1      +     0.9    +   0.8     +  0.7     +  0.6    +    0.5      +  0.4      +    0.3       +  0.2     +   0.1 =    5.5 
If you bought stationery and paid 5.5 then you got your money in 10 years. 


If the owner was selling bakery for 10 then P/E ratio would be 10. (P/E=10;P=10*E)
If the owner was selling grocery for 26.05 then P/E ratio would be 26.05.
If the owner was selling bakery for  5.5 then P/E ratio would be 5.5.

If the buyer wanted his money back in 10 years then all prices would be fair prices. Thats the reason why differently growing companies have different fair P/E values.

If grocery has fair P/E 26.05 and stationery has fair P/E 5.5. How can we spot the bargain ?

Pretty easily, the person that will get his money back earlier than in 10 years will get a bargain. So if you paid for the grocery 12.95 then you got your money in 7 years (1 +  1.2 +  1.44 +  1.73  +  2.08  +  2.50  + 3= 12.95 ).

To spot bargain in differently growing companies the question should be:When do I get my money back ?  (Payback period).The lower (sooner) the better.

Is there any server that tells you payback period for almost every stock and for free ? Of course try Morningstar-SYMBOL-Valuation ratios-Forward valuation-Payback (Yrs) 

You can compare ARO and USG or DFC and JOSB or TOL and MTH.

Beautiful isn't it ?
 
Now if grocery has PE=10 and its earnings are growing (g) 20% annually then PEG ratio is PE/g =PEG;PEG=10/20=0.5
g=PE/PEG.

So if forward P/E is 5.9 and PEG is 0.5 then you know that g=11.8% (5.9/0.5). It means that there is an assumption that growth in following years will be 11.8% annually.If you want to be suprise try CFC funny isn't it ?

How do they come with the growth they expect? Usually its based on ROE or they just try to guess.Now in reality earnings are bullshit so you need to come with owners earnings or free cash flow,but how is it with cash flow statement in financial companies? :):):)