There are two price
earnings ratio lines that are drawn on the graph.
Not exact matches
Turning to investment metrics, multiples at a recent 24x trailing bottom
line price to
earnings ratio, may be too high at first glance, according to Seeking Alpha, but huge presence in the payments market deserves such a premium.
The red
line (until the divergence) is the actual CAPE
ratio, but after it represents the assumptions that
earnings never fell.
That basic estimate is based on a standard reference price - to -
earnings (P / E)
ratio of 15, which is shown by the orange
line on the following chart.
The Australian price /
earnings (P / E)
ratio has fallen slightly since the previous Statement to around 19, which is broadly in
line with its long - run average.
The basic valuation estimate uses a reference price - to -
earnings (P / E)
ratio of 15 multiplied by the company's
earnings, which is shown by the orange
line on the following chart.
For value - oriented investors, this list of low price - to -
earnings ratio stocks is a great place to start looking for investment ideas.Screens are available every week in the Index section of The Value
Line Investment Survey.
The screen is fairly simple, highlighting companies with price - to -
earnings multiples and price to «net» working capital
ratios near the bottom of the Value
Line universe.
But the reason for Allergan's different
ratios is that some financial information providers use bottom -
line earnings while others take Income before Extraordinaries and Discontinued Operations.
To this end, each week The Value
Line Investment Survey contains a listing of the 100 companies with the lowest price - to -
earnings ratios out of the approximately 1,700 followed by the Survey.
The
earnings beat
ratio is 63.2 %, while only 36.8 % of the companies have come out with positive top -
line surprises.
But notice in the orange box that the orange
line has been computed at a P / E
ratio (price - to -
earnings ratio) of 15.
On the above chart, the orange
line represents fair value as computed using a Price /
Earnings ratio of 15 (as shown in the orange box to the right).
The basic valuation estimate uses a standard reference price - to -
earnings (P / E)
ratio of 15, which is shown by the orange
line on the following chart.
The red
line running through all of the boxes represents the current
ratio of price to averaged
earnings.
DIV STRK is consecutive years of dividend increases; DIV YLD is yield using the most recently announced dividend; 5 YR YLD is average dividend yield over the past 5 years; REC DG is most recent year - over-year dividend growth; 5 YR DG is average annual dividend growth over the past 5 years; PRICE was at market close Friday, March 2; FAIR VAL is Morningstar's «Fair Value Estimate»; FWD P / E is price /
earnings ratio based on projected 2018
earnings; 5 YR P / E is average P / E
ratio over the past 5 years; MOAT is Morningstar's rating of competitive economic advantage; SFT is Value
Line's «Safety» score; CRD is Standard & Poor's credit rating; MKT CAP is market cap in billions of dollars.
Once again, remember that although the P / E
ratio of the blue
line is 11.8, its slope is equal to the 27.1 %
earnings growth rate.
In essence, since prices flat -
lined and
earnings experienced double - digit growth, a fundamentally inexpensive stock market via the price - to -
earnings ratio (P / E) became even cheaper.
With Brown - Forman's current FCF payout
ratio at a moderate 52 %, investors should expect the company's dividend to grow about in
line with its
earnings and FCF / share.
The default estimate is based on an average price - to -
earnings ratio (P / E) of 15 shown by the orange
line.
However, there are a few companies with
earnings growth rates above 15 % where the orange
earnings valuation reference
line will be drawn at a higher P / E
ratio, and one REIT example where I will be presenting the more appropriate price to funds from operations (FFO).
On the majority of these graphs the orange
earnings justified valuation reference
line will be drawn at a P / E
ratio of 15.
On top of that, I want companies with low payout
ratios — how much the dividend is as a percentage of
earnings — because that indicates that there's room for more, and generous, dividend increases along the
line.
The orange
earnings justified valuation PE
line represents the longer term historical PE
ratio of 15, which is generally accepted as fair value for the average company and approximates the PE of 16 that Prof. Shiller embraces.
With profit growth like that, it's no wonder many big banks are boasting low payout
ratios (the percentage of
earnings headed out the door as dividends) these days, like JPMorgan Chase & Co. (JPM), whose
ratio (orange
line below) sits at an ultra-safe 36.8 % as I write, even as management has cranked up the dividend by 40 % in just the past 4 years (blue
line):
The
earnings don't go up in a straight
line, but they don't move around anything like as much as the PE
ratio either.
The first Stocks I their eliminated were those whose Price to
Earnings Ratios were out of
line with their industry average