Your Formula for Profits: What Are Bargains PayPal, Citigroup and Almonty Really Worth?

Simple formula for valuing companies

Benjamin Graham is regarded as the founding father of value investing. He assigned a price-to-earnings (P/E) ratio of 8.5 to a company with no growth. If earnings rise steadily, twice each percentage point of the long-term growth rate is added. The sum gives the appropriate P/E ratio. Multiplied by earnings per share, this gives the fair value. Ultimately, the formula looks like this:

Fair value = earnings per share x (2 x growth rate + 8.5)

A company whose earnings increase by 5% annually would therefore be worth a P/E ratio of 18.5. Graham later added an interest rate component. To do this, he divided the long-term average interest rate of 4.4% by the current yield on top-quality AAA-rated corporate bonds. This currently stands at 5.64%. This gives a factor of 0.78, which pushes the base P/E ratio for companies with no growth down from 8.5 to 6.6. The logic behind this: anyone already earning a decent return on safe bonds should pay less for shares.

PayPal: What comes next after the failed takeover

When the P/E ratio is below 10, Graham’s method repeatedly flags stocks trading at bargain levels. One example is PayPal, with an estimated P/E ratio of around 9.8 for 2027. The company processes online payments, operates the Venmo payment app and earns money on every transaction. In the summer, the group appeared to be on the verge of a change of ownership. A consortium comprising payment services provider Stripe and financial investor Advent reportedly offered USD 60.50 per share, for a total of more than USD 53 billion. At the end of August, however, the prospective buyers withdrew. The share price fell from USD 62 to USD 52. It has since stabilised at around USD 57. The market apparently considers it possible that additional bidders could emerge.

Regardless, management is working to improve the company's earnings power. Enrique Lores, previously head of computer group HP, has been leading the company since March. He wants to cut around a fifth of jobs over the next few years and thereby save at least USD 1.5 billion. The problem is the traditional PayPal payment button in online shops, which is barely growing. Venmo, by contrast, is growing strongly. "We must once again become a technology company that leads through innovation," says Lores, setting the direction.

Analysts expect steady earnings growth of around 8% over the coming years. Under Graham's original formula, this justifies a P/E ratio of 24.5 (8.5 + twice the growth rate, i.e. 16). Multiplied by expected earnings per share of USD 5.78 for 2027, this would give a fair value of USD 141.61. With Graham's interest rate component, the appropriate P/E ratio falls to 22.6 and the fair value to USD 130.63. Either way, both figures are miles above even the analysts' most optimistic price targets of USD 80 to USD 85.

Citigroup: The lengthy restructuring bears fruit

A fresh start is also the main theme at Citigroup, albeit one that has taken considerably longer. Jane Fraser has been at the helm of the major US bank since 2021 and has thoroughly overhauled it since then. Citi has exited 12 of its 14 retail banking markets abroad and reduced management layers from 13 to 8. Its Mexican subsidiary, Banamex, is set to leave the group's balance sheet in early 2027 and then be floated on the stock market. The results are impressive. In the third quarter, profit rose 40% to USD 5.25 billion. Fraser sees this as “the disciplined and consistent execution of our strategy”.

Looking ahead, analysts expect earnings growth of 19.9%. Under Graham’s formula, this would yield a P/E ratio of 48.3, up from the current 9.5. With expected earnings per share of USD 12.83 for 2027, this would produce a spectacular USD 619.69, more than five times the current share price of around USD 122. For a major bank, however, such a pace is hardly sustainable over the long term. The US banking sector's underlying growth rate of 6% annually would be more realistic. This brings the appropriate P/E ratio down to 20.5 and the fair value to USD 263.02. Even this still promises a doubling and is well above the analysts' average price target of around USD 150. Including the interest rate component brings it to USD 238.64, about 80% above the current share price.

Almonty: Far below fair value even on conservative calculations

Sometimes a single analyst report is enough to knock a share off course. At the end of September, Goldman Sachs took its first close look at tungsten producer Almonty Industries. The verdict was sober: “Neutral”, price target USD 13. The market apparently read this as a Sell signal. The shares are now trading at USD 8.70 on the Nasdaq. Even reaching Goldman's price target would therefore offer around 50% upside. A look through Benjamin Graham's lens shows just how wide the gap to fair value really is.

Analysts believe the company can achieve 40% to 60 earnings growth per year. Even at the lower end and with the interest rate component, a P/E ratio of 86.6 would be appropriate. With expected earnings per share of USD 1.32 for 2027, this would equate to a fair value of USD 114.31, more than 13 times the current share price. However, this figure warrants caution. Almonty is only just crossing the break-even point. From such a low base, growth rates inevitably look very large, which shows where Graham's method reaches its limits.

It is therefore more realistic to use the long-term growth rate of global tungsten demand of 6.3% rather than expected earnings increases (even though this figure is likely outdated now due to increased demand from the defence and space industries). With the interest rate component, this gives a P/E ratio of 19.2 and a fair value of USD 25.34. This matches the analysts' average price target of USD 24.35 almost exactly. After all, not all firms are as sceptical as Goldman Sachs. Stifel puts fair value at USD 25, while D.A. Davidson puts it as high as USD 33.

Tungsten: The indispensable heavy metal 

Tungsten has the highest melting point of all metals and is extremely hard. Without this raw material, there would be no carbide tools, no armour-piercing ammunition and no heat-resistant engine components. China accounts for around 80% of global production. Since Beijing drastically restricted exports in early 2025, the price of the intermediate product ammonium paratungstate has risen by around 775%. Other producing countries are following suit. Zimbabwe has banned exports of tungsten ore, while Vietnam is considering a similar proposal. From January 1, 2027, US defence contracts will also prohibit tungsten from China, Russia, Iran or North Korea, regardless of where it is further processed. The risk of dependence on the tungsten price should therefore remain limited for Almonty. CEO Lewis Black takes a relaxed view of the situation. He says demand does not fall away because of high prices, but only when the material is unavailable.

In addition to the Panasqueira mine in Portugal, which has been producing for years, the company owns Sangdong in South Korea, set to become one of the most important tungsten production sites outside China. In the first expansion phase, it is expected to deliver around 230,000 metric tonne units (MTUs) of concentrate per year. One such unit corresponds to 10 kg of tungsten trioxide. The second phase is expected to roughly double this volume from 2027. More than 90% of Phase I production has been sold under a 21-year offtake agreement, with a minimum price but no upper limit. At the end of September, the first bags of concentrate were ready for shipment. “Sangdong is no longer a promise for the future”, stresses CEO Black.

Stifel expects revenue of CAD 926 million for 2027, up from CAD 33 million in 2025. Further projects in Spain and Rwanda, as well as planned production in the US state of Montana, are intended to further secure supplies. The originally Canadian company also relocated its headquarters to Montana in the spring. Being based in the United States makes doing business with the local defence industry considerably easier. The expansion is financially secured. An USD 800 million convertible senior notes offering has raised enough cash to buy back the company's own shares. Almonty has so far acquired around 2.9 million shares for approximately USD 48 million.

Three bargains in the expensive US market

Whether one follows the Graham formula or the analysts: Almonty shares have upside potential of between 50% and well over 100% – and that is a conservative estimate. Strong demand from the defence industry should increase the long-term growth rate and, therefore, the fair value. A single-digit P/E ratio is not appropriate for a company regarded as a beacon of hope for the West. The same applies to Citigroup. The group has largely completed its restructuring, and profits are already rising sharply. A P/E ratio of below 10 hardly reflects this, especially as even the conservative Graham calculation promises a doubling. PayPal is also too cheap. Even the highest analyst target of USD 85 is around 50% above the current share price. If takeover speculation remains alive, there is an additional opportunity.