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Thread: PE ratio

  1. #61
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    In my view, ratios are just a screening tool and only as useful as the database you can access to find them. If there isn't a site that gives the ratio for all stocks on the ASX so that you can sort out the best ones to hunt through, then there isn't much point. Might as well start at the "A's"

    Value measurement does not tend to indicate the direction of a share price, only the speed with which it can rise or fall. Which is where value parameters can put the octane in a portfolio.

    However, once eyeballing a stock then it is the direction of profits and the speed of change in the future that is the focus, since that is the key element of a rising share price. Ratio's may provide a few clues as to what is possible, but it is more subjective guesses and assumptions that will be essential. (At least having made these guesses, each result or forecast can be rapidly scanned to see if things are on track.)

    Finding companies that have transparency and consistency in their approach will generally reduce the range of likely outcomes. Lower risk is usually a positive, particularly for slow-moving types who are looking for the mid-long term trades.

  2. #62
    Member Te Whetu's Avatar
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    Quote Originally Posted by Lizard
    Might as well start at the "A's"
    Problem with the "A's" is that's where everyone starts...

    It's like buying a lotto ticket when there is a massive jackpot (i.e. + EV) and getting the numbers 1, 2, 3, 4, 5, 6 ... there are generally more than 10 other people who have the exact same numbers. Unless you think you're going to get through all the stocks in the index you should possibly start with a news paper and base your first selection criteria on PE multiples, it's all about maximising outcomes for a given amount of time input. This only works if you know you don't want to invest in a certain range of PE multiples (given other things are also true of course).

    As for a data source, I use sites like yahoo finance + an excel macro for to scan stocks. It requires a good understanding of excel, but it's free. Otherwise there are plenty of paid tools out there.
    Last edited by Te Whetu; 28-05-2011 at 08:52 AM.

  3. #63
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    Default PE Ratio For a 'No Growth' Company

    Quote Originally Posted by Beagle View Post
    The ten year Govt stock risk free rate was 0.55% the other day when I looked.
    Ben Graham's well known PE for a no growth company was 8.5 for a 10 year risk free rate of 4%. 1 / 8.5 = earnings yield of 11.76% WHICH
    is a 7.76% premium over the risk free rate.

    Using that same premium over the risk free rate now gives 7.76% + 0.55% = required earnings yield of 8.31% = PE of 12.
    With interest rates where they are and looking to stay at historical lows for the foreseeable future I see the right PE for a no growth company as 12.
    This post doesn't really follow from the other posts in this thread from umpteen years ago. But I think it should go here nevertheless.

    I pulled the above quote from the Oceania thread, Beagle post 6891.

    Beagle has used an 'fixed premium' of 7.76%. I think it is interesting to consider to use of a multiplicative premium calculated as follows: 11.76%/ 4% = 2.94

    No risk rate = 0.55%

    Required earnings rate = 0.55% x 2.94 = 1.62%, which implies a PE of 100/1.62 = 62

    So by this logic it makes sense to buy just about whatever you like because interest rates are so low ;-P

    SNOOPY
    Last edited by Snoopy; 16-10-2020 at 12:56 PM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

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