Terrific Gains Include Fundamentals.
When we walk like an Investor, and think like an investor, we’re probably Investors. How do investors’ think? Clearly. Price is a starting point.
Tool Time. Build Your Box. Want more insight? We have the NVGs. Night Vision Goggles really won’t help your investing results. But grabbing up this clutch of simple “valuation” tools will. Read on and value like a pro. Guess what? Pros put on pants too.
The cost of moving product out the door is a “metric.” Metrics paint the picture. How efficiently are your companies operating? Check their Price-to-sales metric for another
O n e concept learned is a concept that can now serve you. How much is 5 minutes of your time worth? Depends on what you learn, and how you use it. How many people steer clear of the stock market and investing, because they feel it’s too hard to understand? We think many. Yet, is that the end? Well, yes, if that’s where one stops. StockJaw firmly feels that complexity becomes manageable when tackled one idea at a time.
Find an interested friend. Team learning. They’re going over it together.
Complexity kills. But not when broken down to one idea at a time. Great individual money management means learning one concept at a time, and moving to the next. How hard it that?
Learning a new concept is like traveling, without looking back. Anybody remember Alvin Toffler? His book “future Shock” explains the “cracking whip of technology.”
How much is it worth? Determining the value of any stock is a multi-step process. But it’s totally understandable, when looked at one piece at a time. Let’s take a look.
The price-to-sales ratio quantifies the exact cost the company pays to generate its’ sales. The ratio varies widely both between specific companies in one industry, and between industries. The more spent simply generating sales, or revenue, the more narrow the profit margin. Businesses in capital-intensive industries,face higher costs, thus a higher price-to-sales ratio. That includes companies requiring many employees, like restaurants and retail. We are looking for cost-effective sales. The price-to-sales metric tells us exactly that.
Getting the product out the door is expensive. Price-to-sales ratio tells us how expensvie.
The P/E Ratio is of course our most notable tool. Yet the humble P/E is a foundational figure. Total revenue and how much a company pays for its’ sales, are important. But so is trajectory. Are sales slowing, stable, or acceleration. The latter is known as ARG, or “accelerating revenue growth.” We want to know this. We want to know who’s creating ARG, an dhow ARGy they are.
“Accelerating Revenue Growth”–or ARG, is exactly what makes “Growth” stocks what they are. But how fast, and at what cost? For that we have the PEG.
Price to earnings-growth-rate, or the PEG. The PEG is the most complete earnings metric going. If we don’t know how fast a company’s growing, we can’t judge its’ value. The PEG ratio does that.
The price-to-earnings growth rate separates slow growers from fast. That’s precisely why we love it. Company’s share prices my sport the same exact P/E multiple, but do not share the same market positioning, or profit potential. The PEG ratio is where you look after digesting the simpler P/E.ratio.
The P/E ratio displays the simple “price” of the equity, to the company’s “earnings.” To arrive at this metric, we divide the current share price by the earning over the past year–denominated in dollars.
A perfect illustration. Learning is like a conveyor. Push past the learning curve, and that knowledge pays you–forever.
With a $10.00 share price, and earnings of $1.00sh., the resultant P/E is 1. 10 divided by 1. That’s considered cheap. A reading of 2 is considered expensive. Companies in different sectors face very different earnings outlooks. Different businesses operate in quite different environments. That means growth trajectories also vary, even when P/Es match. The PEG moves us right past this block. That is if you know it, and apply it.
Every chair represents another concept gained. Every seat you fill fuels your boardroom
Savor our take on more fundamentals–
Every Price Tag You Check is Another Example.
Thanks for reading. Keep looking.
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