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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
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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

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    Last edited by Snoopy; 16-10-2020 at 12:56 PM.
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  4. #64
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    Bad dog. Stick to the fundamental's. PE of 12 is correct for a no growth company.
    Ben Graham's theory was no growth PE + 2g x last years eps. (Where g is the anticipated average growth rate for the next 7-10 years).
    Of course it goes without saying the trick here is just the "small" matter of trying to estimate what g is for any given company.

    My own theory of trying to find growth at a reasonable price (GARP) stocks is to use this formula.
    No growth PE plus 1g x next years estimated eps.
    A worked example is probably a good idea which will give an illustration of why OCA is my biggest position on the NZX.
    I have estimated next year annualized eps at 12 cps, (FY21 includes a change of balance date so will be 10 months and I think will be 10 cps).
    SUM and RYM have proven its possible to grow at an average annual growth rate of approx 15% and I think this is a reasonable guess for g.

    So value to me for OCA is a PE of 12 for no growth plus 1g = 15 = 27 times next year's earnings of 12 cps = $3.24.

    This represents my belief of the intrinsic value of the company today but of course the market does not recognise that as a relative newcomer to the NZX OCA can grow as fast as SUM and RYM have so it will have a considerably lower PE until it can prove that growth rate is sustainable over a number of years.

    What does this all mean to this dog ?
    I expect over the years ahead that OCA's share price will grow strongly from its increasing eps.
    I also expect the market to start to appreciate the merits of OCA's business model which could lead to not only strong growth from eps increasing but also from an expanding PE multiple.

    I think its quite plausible that this could lead to very strong market outperformance in the years ahead.
    Last edited by Beagle; 24-10-2020 at 08:57 AM.
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  5. #65
    percy
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    Below are some figures from an Aussie company I have shares in.
    Three questions.
    1]What would you guess their 2021 eps will be.?
    2]What should their current PE be ?[note I think 13.48 is way off.]
    3] What forward PE ratio do you think this company warrants.?

    ......2017...........2018.........2019.........202 0.
    eps......06.............08...........1.6.......... 2.3
    eps growth.....33%.........100%........43%
    Current PE ratio 13.48.....and compare that with growth rate..
    Yield 4.52%
    1st quarter PBT up 19%
    Debt now 0.9mil [30th June 2020] down from $2.3mil[30th June 2019]
    Last edited by percy; 26-10-2020 at 04:39 PM.

  6. #66
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    Quote Originally Posted by percy View Post
    Below are some figures from an Aussie company I have shares in.
    Three questions.
    1]What would you guess their 2021 eps will be.?
    2]What should their current PE be ?[note I think 13.48 is way off.]
    3] What forward PE ratio do you think this company warrants.?

    ......2017...........2018.........2019.........202 0.
    eps......06.............08...........1.6.......... 2.3
    eps growth.....33%.........100%........43%
    Current PE ratio 13.48.....and compare that with growth rate..
    Yield 4.52%
    1st quarter PBT up 19%
    Debt now 0.9mil [30th June 2020] down from $2.3mil[30th June 2019]
    The answer to all three of those questions is impossible to answer if you do not know what the future expectations of the company are.
    Whilst the past performance of the company is useful, it is only so in context.


    So, you analyse the company and it's market you make your educated guesses on future turnover, profit/loss, dividend, possible new share issues for a number of years ahead.

    You weight/discount said numbers according to your appropriate model & the probability that your crystal ball is correctly seeing the future and out comes a value curve: being the calculated market value per share of this stock at intervals over the next year or two.

    Your panther instincts tells you the result is way out and you make up some dubious fudge factor to fiddle the numbers.

    Then if the current value is less than the current market price you don't buy it and if the current market price is less than the current value then you consider whether the discount makes it worth buying.

    The P/E ratio does not actually come into it at all.



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  7. #67
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    Quote Originally Posted by Snow Leopard View Post
    The answer to all three of those questions is impossible to answer if you do not know what the future expectations of the company are.
    Whilst the past performance of the company is useful, it is only so in context.


    So, you analyse the company and it's market you make your educated guesses on future turnover, profit/loss, dividend, possible new share issues for a number of years ahead.

    You weight/discount said numbers according to your appropriate model & the probability that your crystal ball is correctly seeing the future and out comes a value curve: being the calculated market value per share of this stock at intervals over the next year or two.

    Your panther instincts tells you the result is way out and you make up some dubious fudge factor to fiddle the numbers.

    Then if the current value is less than the current market price you don't buy it and if the current market price is less than the current value then you consider whether the discount makes it worth buying.

    The P/E ratio does not actually come into it at all.



    7 fascinating facts about snow leopards
    Yep PE ratios are a very inconsistent way to value an investment or whether you should buy a given stock or not eg CNU on a PE of 70ish take a look at the sp rise over the last few yrs and the charts, seems completely nuts to me but people keep buying and the price keeps rising, divvy yield is also average, its basically a no growth company on over twice the PE of A2.
    Last edited by couta1; 26-10-2020 at 08:41 PM.

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