Earlier in the year, I urged skeptical Procter & Gamble (NYSE: PG) investors, "If you've been waiting for signs of a turn before initiating or adding to a position, I'd say this is it." I stand behind that recommendation today. But now, I want to offer investors something that I didn't have the space to include then: a detailed look at valuation.

Predicting the future
First, let's establish that P&G shares have moved up only 3% or so since I turned cautiously positive on the company. That means the potential value I recognized back in January hasn't been bid away.

Second, P&G's fiscal year ends in June. This does create a problem. If we use fiscal 2010 estimates as a valuation basis, we're looking backward more than forward. Plus, management forecasts that FY10 earnings per share from continuing operations will come in slightly lower than in FY09, which makes it difficult to assign an appropriate growth multiple.

All things considered, I believe we'll do best to hitch our valuation work to fiscal 2011, even though we'll have to rely exclusively on the ol' crystal ball.

Here, I tentatively expect that the company can grow EPS from continuing operations -- a metric that excludes asset sales and the like -- by 12% compared to FY10. That growth rate is feasible, and possibly downright conservative, for a bounce-back year. Also, it squares with the mid-to-high range of the company's historical performance.

Assuming the midpoint of management's current-year estimates ($3.44-$3.54), that puts 2011 EPS from continuing operations at $3.91.

Well, great, but what now?

Nailing down a multiple
This is the really hard part, where market fickleness intersects with our only somewhat more scientific assumptions about future EPS. If we assign P&G shares a price-to-earnings multiple of 12, exactly in line with our projected 12% growth rate, then we get a target price of about $47 a share -- well below the current $63-and-change level.

But would that be reasonable? As measured by the PEG ratio, companies such as Seagate Technology (Nasdaq: STX) and Hewlett-Packard (NYSE: HPQ) trade at a discount to expected future growth -- perhaps reflecting the risk of what could someday be a major EPS disappointment. However, P&G competitors such as Colgate-Palmolive (NYSE: CL) and Clorox (NYSE: CLX) trade at 96% and 61% premiums, respectively, to forecasts of five-year growth.

The only question now: What level of premium do P&G shares deserve? Given the historical quality of the company's financial performance (free cash flow has roughly matched or exceeded net earnings), along with the recently encouraging news on product innovations, I'm going to go with 56%. That matches the average for the processed and packaged goods industry, which includes names such as Unilever (NYSE: UL) and Kraft (NYSE: KFT). Moreover, I believe that it strikes a middle ground between P&G's struggles of the past year and what looks like a brighter future.

Ultimately, we're putting an 18.7 P/E on predicted fiscal 2011 EPS from continuing operations of $3.91, in order to arrive at a target price of ... drum roll ... $73.

Assuming that P&G delivers sales and volume growth along with EPS gains, I'm fairly confident in that number.

Which means, yes, P&G is a buy.

Looking for high-growth stocks? Jim Royal shows you where to find big returns.

Clorox, Procter & Gamble, and Unilever are Motley Fool Income Investor selections. Unilever is a Global Gains pick. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Mike Pienciak holds no financial interest in any company mentioned in this article. The Fool has a disclosure policy.