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Investment Analysis Clubs / The BMW Method


Subject:  Re: BMW Assumption #1 Date:  3/12/2018  10:35 AM
Author:  captainccs Number:  42218 of 42349

Pepsi at a P/E of 33? Why? Growth is negligible. So how good a measure is "price"? Interestingly, check the CAGR of Pepsi at the 40-year bmwm chart(15), and step ahead over each 5-year increment. It's on a CAGR descent down to 8 on the 16-year chart. So, in this case, I'd be very reluctant to buy PEP at an attractive RMS or return factor. Not unless lightening strikes this over-priced stock or KO goes bust.

The GAAP P/E is a worthless bit of trivia, specially in high tech with high R&D spending. To get a P/E ratio that makes sense like it used to 20 years ago you have to strip out the CRAP that FASB has introduced in GAAP. Two primary culprits are the expensing of R&D and the expensing of stock options both of which depress earnings raising the P/E ratio but also the mark to market of securities like warrants to buy shares which makes earnings and the P/E ratio abnormally volatile.

Saul (at Saul's board) strips out these items as part of his analysis.

BTW, KO's TTM P/E ratio is 153.08. Did Mr. Market go bonkers or is FASB/GAAP living in FantasyLand?

Denny Schlesinger
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