No. of Recommendations: 3
No, it doesn't! Forget the numbers for a moment and look at the price line. That's what I call a tired company that no longer grows at previous rates. It's not enough to read the chart, one also has to figure out why the chart is saying what it is saying (I'm tired).

Looking at a price CAGR chart, with or without “numbers” tells you nothing about a company or its prospects; all it records is historical stock prices.

Concluding that a flatlining stock price CAGR line means a company is “tired” and doesn’t represent opportunity for an investor is a bit like thinking after several months of winter winter will last indefinitely.

Flatlining stock prices often represent opportunity. In some cases companies earnings growth has slowed and investors have over reacted and bid down the value of the companies too far, sometimes cutting their P/E ratios in half. For example: defense stocks for several years after the Great Recession were still slowly growing earnings and could be had for PE’s of 9 or 10 — no longer. The same is true of Microsoft. Market sentiment rather than company fundamentals were at play.

None of this though could be gleaned from reading the tea leaves of a price CAGR chart. Sometimes investors are grumpy and gloomy, but like the seasons their mood changes. And, sometimes companies deteriorate and fail and investors pay attention, but neither of which can be gleaned from a chart with only one metric on it (in this case prices).

You can neither know if
the 40-year chart looks like a good entry point for XOM
Or
No, it doesn’t!
from one of these charts.
You two are just reading the tea leaves differently and it makes me think of this exchange from Hamlet.

HAMLET
Do you see that cloud up there that looks like a camel?

POLONIUS
By God, it does look like a camel

HAMLET
To me it looks like a weasel.

POLONIUS
It does have a back like a weasel’s.

HAMLET
Or like a whale.

POLONIUS
Yes, very much like a whale.



Tea leaves; clouds; the BMW method…

kelbon
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