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To: d4now
calmly explain that 10 times earnings is historically viewed as fairly valued.

That's a great point, d4now. However, the p/e ratio, by itself, excludes the most important factor in stock valuation - earnings growth %.

When I value a stock, the first thing I look at is p/e ratio. Next, I look to see, based on earnings growth % over the past 5 years and expected next 5 years, how long it will take for the "e" to equal the "p." The sooner the better (because of less risk).

For example: ABC trades at $10/share; the p/e ratio is 20/1; the earnings growth is 50%; the stock earnings equal a 1/1 p/e ratio in year 6; and thus the present fair market value of the stock is around $47 (taking the earnings growth over 30 years and discounting it by an estimated 30-year note rate of 5.5% (currently it's actually 5.38%)). I'd buy that stock at $10 (in fact, I'd buy longer term call options on it).

10 posted on 06/19/2002 10:47:58 PM PDT by JamesWilson
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To: JamesWilson
Please look at the dollar index and juxtapost that with what you know (good opinion and fine thinking, imo).

It, the dollar decline, seems paramount to me. While a decline in the dollar doesn't have to mean no growth it will probably increase the rate at which foreign investors leave this market. And that is what matters right now and months from now.
14 posted on 06/20/2002 6:15:32 AM PDT by d4now
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