Open Question
When Jim talks about a stock priced at , lets say $80 and is going at 8 times
earnings, I'm lost. I do the math & it never comes out right. Also he says
stock with a p/e ratio equal to or less than it's growth rate is a cheap stock,
while stocks with a p/e ratio of twice the growth rate is expensive. Where do
you find the growth rate? I thought I did, but it was a percentage. If that is
right, then how do I compare a percentage against the price dollar amt? Any
help is appreciated.....I'm just totally lost.
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pickup a copy of Jim's book: Real Money:sane investing in an insane world. it's
all explained in there...plus pretty much everything else, but you won't realize
it til you've been playing awhile and have made lots of mistakes...especially
the one's he tells you not to do but you do it anyways.
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P/E is price / EPS (earnings per share) you may get lost on EPS because you can
be looking at last years, or a forward EPS. so using CSCO and the last years
EPS, we have an EPS of 1.29. then we have a price of 24.24.
so we do price 24.24 / 1.29 =18.7. and 18.7 is the P/E for last year.
times the growth rate is simply PEG. this is ( P/E / EPS Growth for 5 years).
for P/E
http://finance.yahoo.com/q?s=CSCO
for PEG
http://finance.yahoo.com/q/ks?s=CSCO
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You don't always have to do the math yourself....you can get this infomation
about a stock for almost anywhere. For instance..........
go to yahoo.com and then finance. Enter a quote for MCD. On the left, click on
Key Statistics. This is where you will find P/E as well as PEG.
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my bad, make that a growth rate of 10. mike
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first off you really need to read mad money. its a extremely informative book
and explains stuff like this that even idiots like me can understand. 8x
earnings would mean that stock earned $10. if the growth rate was 8% than it
would have a peg of 1. if you simply google a lot of the terms you see you'll
find you can get a lot of info on anything about stocks. try typing in "peg
stocks" keep at it you'll figure it out. mike
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Jim usually refers to a stocks forward earnings, so if its an 80 dollar stock
and the forward p/e is 8 next year the analysts are saying they will earn 8
dollars per share. the p/e listed in suck places as ayhoo finance is the
trailing years p/e. as for the p/e ratio over growth rate you need to throught
math out the window. if the p/e is 10 and the growth rate is 10% then the peg is
1 that is 10/10=1 dont convert the growth rate to a decimal, if the pe is 10 and
the growth rate is 5% then 10/5 = 2 the stock is expensive, remember tho jim
refers to future p/e not last 12 months. this data can be found on yahoo under
the analysts estimates section in the lower left of the stock page
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