The Motley Fool Discussion Boards

Previous Page

Social Clubs / Last RoundUp

URL:  https://boards.fool.com/its-not-an-either-or-ideally-its-the-iv-of-each-31715645.aspx

Subject:  Re: Cheap stocks or earnings growth Date:  4/16/2015  2:18 PM
Author:  knighttof3 Number:  661 of 3781

It's not an either-or. ideally it's the IV of each individual stock compared to its current stock price. Having said that, computing IV is easier said than done.

My rough methodology is -
- Don't predict the future, don't assume earnings growth will continue, don't assume market sentiment will continue.
- Balance sheet is all-important for financials, important for resource companies (many energy and materials), relevant only to check red flags like excess leverage, excess goodwill etc for most other companies.
- Cash flow statement is mostly important to make sure income statement is not hiding something. e.g. net income should be comparable with CFO - CapEx (averaged over a few years.)
- Income statement tells you most of the story, except for direct-to-book "earnings" (not sure what the accounting term is for those.) Mostly the latter are relevant for financial companies who book gains and losses on long-term investments.

Bottom line, I still use the same method. But in the last year, less and less companies look cheap by any measure. Some in fact look fully valued. e.g. I sold PG at 25x P/E and no growth, though it is undoubtedly a solid company that can pay you a 3% dividend forever. But when everything has risen so much, opportunities due to volatile sentiments cannot be far behind.
Copyright 1996-2020 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us