Valuation Fun With Peg And P/E. “Who’s P/E Again?”

THE P/E RATIO WAS NOT CARRIED DOWN FROM THE MOUNT IN TABLET FORM.  BUT, THOSE WERE THE EARLY DAYS OF DISMAY AND QUEASINESS OVER AMAZON’S PRICE-TO-EARNINGS MULTIPLE.  SO YOU WANT THE BEST FOR THE PRICE OF THE REST?  HOW DOES THAT THINKING PERSIST?

 

Why bother to do your own numbers?

ONE MORE FROM VOX YET AGAIN COMPARED AMAZON’S P/E TO THE S&P 500.  THE NUT WAS THAT AMAZON’S SAVAGELY OVER-PRICED.  AMZN’S SHARE PRICE IS CAST LIKE THIS–IT’S SHARE PRICE WOULD HAVE TO FALL 90% TO REACH THE MARKET AVERAGE OF 24.  THE IMPORT SEEMED MORE AN ATTEMPT TO BROADSIDE, RATHER THAN INFORM.  WHY?

Data streams are full of mistakes.  Do you really want to buy on one?

THE REPORTER NEVER BOTHERED TO MENTION THAT AMAZON IS FAR FROM AVERAGE.  NO INCLUSION OF THE PEG RATIO–THE EARNINGS GROWTH RATE, THE NETWORK EFFECT, OR INDUSTRY POSITIONING.  THE TOOLS BELOW WILL SAVE YOU.  THEY WILL ALSO KEEP YOU FROM SAYING THINGS THAT MAKE NO SENSE.

P/E calculation.  Divide current share price by annual EPS.

 

   

Graphics, Price to E

Divide current share price by annual EPS, not quarterly.  This pair of unassuming metrics are amazing. They cut the yap and crap. Easy as pie to learn.  Make them yours forever. Like cutting tools? Us too.(SJGraphic.)

 

 

IN STOCKjAW’S MONEY CHOPS WE PRESENT THE TOOLS INVESTORS NEED IN ORDER TO CORRECTLY INCORPORATE FUNDAMENTAL ANALYSIS.  THE P/E RATIO IS OUR FOUNDATION VALUATION TOOL.  IT’S FUN, YET INCOMPLETE.  ADDING THE ADDITIONAL CALCULATION OFFERED BY THE PEG RATIO CREATES ACCURATE COMPARISONS; APPLES TO APPLES OR APPLES TO ORANGES.

 

Data streams are products, made by people.  Mistakes are just part of it.  Ever seen a P/E ratio off by a factor of 4?  Ever seen a peg ratio listed as 4.5, when it was really 2.6?  We have.  We did the math.

 

WHY DO THESE SIMPLE CALCULATIONS?  BECAUSE DATA STREAMS WERE NEVER PERFECT AND AREN’T PERFECT NOW.  MISTAKES ARE GUARANTEED.  WE’VE FOUND P/E’S OFF BY A FACTOR OF 4.  WE PRESENT THE P/E AND PEG RATIOS NOW SO YOU CAN HAVE CONFIDENCE IN THE NUMBERS YOU MOVE ON.  YOU HAVE NOTHING TO LOSE, UNLESS YOU SIMPLY RELY ON OTHERS TO DO YOUR WORK. 

 

 

Graphic, PEG ratio, X

Employing the PEG ratio allows true comparisons. Smart investors pay up for fast growth. Sometimes cheap is just cheap, not value. Best example–Amazon. Avoiding AMZN based on a high P/E misses the entire point. The PEG ratio is your first step toward truth.(SJGraphic.)

 

 

A PEG RATIO OF 1 IS CONSIDERED CHEAP.  2 IS CONSIDERED AS EXPENSIVE.  THE PEG RATIO ALONE DOES NOT DETERMINE VALUE OR WORTH.  THE HOLISTIC USE OF BOTH DISCIPLINES, FUNDAMENTAL AND TECHNICAL ANALYSIS, IS REQUIRED TO KNOW YOUR STOCK.  THESE RATIOS ARE WHERE YOU START.  TOOL ON.

 

 

Find more STOCKjAW investing goodies on our

MONEY CHOPS PAGE;

https://stockjaw.com/money/

 

 

Thanks for reading.

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STOCKJAW.COM

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Additional resources:

Investopedia.com.  Seriously Wonderful.  Fact.
http://www.investopedia.com/
Charles Schwab.  In Our Opinion, the best broker going.
https://www.schwab.com/public/schwab/client_home
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Be careful.  Do the work.  Have patience, with yourself.  Never put your dreams away.

 

 

STOCKjAW

Dollars Are Employees. We Make Them Work. Slack Dollars Reborn Busy. STOCKjAW helps You make the dollars you worked for work back. Do it simple and streamlined. Or do it Full-Bore. Stocks, ETFs, and more. It's Your cash. Sj helps you point it in the correct direction.

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