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Written by TheGainMaker
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Monday, 13 February 2012 01:41 |
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What is the PEG ratio and what does it tell investors?
The PEG is the P/E ratio with growth incorporated into it.
PEG = (P/E)/EPS per year.
Here is an example:
Noble Energy Inc. (NBL) has a price of $101.15 divided by its earnings of $4.44 gives us a PE ratio of 22.8.
22.8 divided by the expected 5 year growth is .61. This ratio implies a 37% compounded growth rate.
Because the growth is projected, it's subject to a lot of variation. Earning estimates for 2012 are forecasting EPS of $5.31 and $6.45 for 2013. The growth from $4.44 to $6.45 represents a 40% gain in EPS.
It's important to know where the numbers that get plugged into this equation come from even though sites like Yahoo Finance, MarketWatch and MSN Money give you the ratio already calculated. Some will use trailing earnings per share for the previous four quarters, others will use the most recent year for the EPS. This can create different PEG ratios from different sites.
The other thing to consider is the amount of growth analysts expect. One analyst out the 20 that cover this stock forecast EPS of just $3.96 versus another that projected $8.23. One is a much more aggressive growth estimate than the other and will give widely different PEG ratios.
In conclusion this ratio should be taken with a grain of salt. Like the PE ratio, it's a starting point and useful in comparing different companies within the same industry but should be dissected in order to limit your risk.
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Last Updated on Monday, 13 February 2012 13:51 |
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Written by TheGainMaker
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Friday, 08 July 2011 15:58 |
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Is the price to earnings (P/E) really the only real ratio to examine stocks? What does it tell you about what the stock will do? How do the Pro's use P/E to for equity valuation?
The P/E has been used for decades as a method of measuring one stock against another. The fact that it's a ratio makes it a good way to compare apples to apples one company against another or, an industry, the sector or the entire market. The "P" in the equation is the stock price and the "E" is the net earnings per share (EPS), usually the trailing twelve months (TTM). This is a number you have to watch very carefully though. It's important to find out where the number is derived from if you get it from a website like Google Finance, Yahoo Finance, Marketwatch or MSN Money. Some will talk about trailing twelve months while others will consider the last reporting year or forward earnings.
Take Pfizer (PFE), whose stock is selling at $18.88 and has net earnings of $1,07 per share (undiluted shares). When you divide the stock price by the EPS you get the P/E ratio or, in Wall Street jargon, the multiple.
We can also use the historic P/E ratio to determine what the price of the stock may be in the future based on future estimates of per share earnings. Simply take the current multiple and multiply it by future earnings estimates to get what could be the future price if investors pay what they have in the past for earnings.
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Last Updated on Wednesday, 02 November 2011 11:47 |
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Written by TheGainMaker
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Monday, 14 March 2011 17:04 |
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REIT"s, Real Estate Investment Trusts, develop, manage, and invest in real estate properties. REIT's do not get taxed at the corporate rate so long as they distribute 90% of its taxable income. Diversified REIT's invest in CDO's or collaterized debt obligations, MBS, or mortgage backed securities and commercial and residential real estate.
These stocks are ranked in order by dividend yield then forward P/E. Please keep in mind that all dividend distribution does not follow standard upward trend as they do in non-REIT stocks so traditional discounted cash flow models for stock valuation are more difficult.
- CIM - Chimera Investment Corporation is selling at $4.24, a current P/E of 6.5, a forward P/E of 6.1 and a dividend yield of 17.2%. Chimera has an impressive ROE of 19.6% and has seen year over year quarterly growth of 61%. The real concern with this stock right now is that the debt has been increasing year over year and debt/assets has increased dramatically.
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Last Updated on Monday, 14 March 2011 19:53 |
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Written by TheGainMaker
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Sunday, 12 December 2010 21:54 |
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Program trading has gained a lot of popularity over the years and have been blamed for the "flash crash" back in May of '10 and the crash in 1987. Program trading uses algorithms to thousands of data points to determine whether a trade should be made on a stock. These trades can include selling shares the user owns, accumulating shares of an equity or selling shares short. Program trading accounts for about 70% of all trading volume on the NYSE.
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Last Updated on Thursday, 20 January 2011 21:06 |
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Written by TheGainMaker
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Sunday, 06 February 2011 22:02 |
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A good strategy begins with a trend. I spotted a trend a few years ago with a selected group of stocks I found by scouring the market using screening tools and charts. After finding the stocks that fit my parameters I would narrow those down further by finding stocks that followed a particular daily pattern.
The pattern emerged as I was looking for small-cap companies with volume in excess of 250,000 shares per day. I would find stocks that would move up or down $.15 to $.25 cents every day AND finish near their opening price. These stocks were so predictable in their behavior that I could bank on making a few hundred dollars a day without even sweating.
Here is an example:
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Last Updated on Monday, 14 March 2011 19:18 |
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Bill Gross, famed bond investor, recently started an actively managed exchange-traded fund, but that doesn't mean other managers will jump into the ETF market, experts tell MarketWatch's Chuck Jaffe at a recent Investing Insights event.
