11-21-2014, 08:23 AM
Joey, I don't think you did the wrong thing because of the growth rates but you ought to look and see why the P/E was so high when you have a company in that situation.
Did the earnings drop or did traders bid up the price to such a high level?
If earnings dropped, why? Is business going south or did they take some extraordinary charges? Many extraordinary charges are non-cash, short-term events. For example, ESV's earnings went negative when they took a huge write-down on stacked jackup rigs that they wanted to remove from the fleet and sell. Their words for it were impairment charges which are non-cash. What caught my eye was the last few times they overestimated the writedown and when they finally sold the rigs, they got more than they were expecting and had to add the excess back. On the other hand, WAG's P/E shot up to the 30's when they decided to purchase the rest of Alliance Boots which entailed a large cash & share expense along with acquisition costs to complete the transaction. Analysts are expecting the earnings to show a double digit increase ex-items over the next couple years because of the purchase which will show up in the cash flow statements. Over the longer term, that should boost their earnings potential.
If the cause is because of investors bidding up the price to obscene levels, then it is probably best to take your profits and move on or wait for the price to drop significantly to get back in.
In LEG's case, they are facing strong headwinds due to Chinese dumping bed springs on LEG's market. They recently asked the FTC to take action against it but in the meantime, they're going to be challenged making a profit when trying to compete with underpriced products from abroad for the next several years.
Did the earnings drop or did traders bid up the price to such a high level?
If earnings dropped, why? Is business going south or did they take some extraordinary charges? Many extraordinary charges are non-cash, short-term events. For example, ESV's earnings went negative when they took a huge write-down on stacked jackup rigs that they wanted to remove from the fleet and sell. Their words for it were impairment charges which are non-cash. What caught my eye was the last few times they overestimated the writedown and when they finally sold the rigs, they got more than they were expecting and had to add the excess back. On the other hand, WAG's P/E shot up to the 30's when they decided to purchase the rest of Alliance Boots which entailed a large cash & share expense along with acquisition costs to complete the transaction. Analysts are expecting the earnings to show a double digit increase ex-items over the next couple years because of the purchase which will show up in the cash flow statements. Over the longer term, that should boost their earnings potential.
If the cause is because of investors bidding up the price to obscene levels, then it is probably best to take your profits and move on or wait for the price to drop significantly to get back in.
In LEG's case, they are facing strong headwinds due to Chinese dumping bed springs on LEG's market. They recently asked the FTC to take action against it but in the meantime, they're going to be challenged making a profit when trying to compete with underpriced products from abroad for the next several years.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan