Cost basis is the single number that creates the opportunity for a winning stock position.
Assuming you began with a good stock, at the right time.
BUILD YOUR COST BASIS LOW THUS CREATING THE ROOM TO WIN.
S o m e stories are complicated and others long. This one is neither. This communique is the anvil upon which we forge all winning equity positions. Valuation. Boring. Basic. Beginner stuff. No. Yes. Yes/No. Building any winning stock position requires the establishment of a viable cost basis. Valuation is the initial piece of proper cost basis construction.
All numbers are not brewed equally. And it doesn’t matter what you pour in after, if the brew itself is wrong. Same with foundational numbers–like forward P/Es.
“The real P/E’s up here, somewhere.”
As we suggested, errors in common financial data streams are simply part of the challenge. Perfection is a myth,oven in highly-developed processes. Some of those mistakes matter. How can one value any equity’s worth when using faulty data?
As many know, StockJaw now has a small position in AT&T. During on-going research we ran across crazy trailing P/E #s for T. One source printed the ttm P/E at 7.74. Another listed it as 24.2. Really? O.K. We then checked Verizon just for kicks. First source says 6.62,again trailing, and the second 15.4. So there it is. Even basic metrics for common companies can be wildly inaccurate. That’s why you must do your own.
Creating a low cost basis is what allows a winning equity position. The lower the better. We know how to buy on dips, buy on the way down, and buy into corrections. But we also need trustworthy individual stock valuation. How easy is that? Very.
“There it is–10.5”
Looking at a potential buy? Go to the company’s Investor Relations section on their site. Locate the company’s own guidance for full year earnings, listed in dollars. Divide the stock price by the projected full year’s earnings. Now you have the leading P/E multiple. We care where we’re going, not where we’ve been.
The most important foundational number–forward P/E. Divide your stock’s current price, by the projected full-year earnings, and you have your accurate forward price-to-earnings multiple. This one you can trust.
Brew you own forward P/E. It really is just that easy. Current share price divided by fy’18 EPS.
Building a great cost basis is hard enough without erroneous numbers. Simply divide current price by projected earnings and you will always have a solid number you can evaluate, confidently.
Valuation includes comparing individual companies against the benchmark index, the sector, industry, and direct peers. We like forward, yet trailing P/Es are most commonly used for broad valuation. Industries and sectors do not have forward P/Es. But as investors we can track industry and sector projections.
And the forward P/E for T? Here it is. T’s now at $36.91 and the company’s own FY’18 EPS projection is $3.50. The math says 10.5. Wonder what they are for VZ and TMUS?
Thanks for reading. Keep looking.
Don’t fight market waves. Relax, like H2O. Rolling with volatility like water yo.