P/E - Personal rules + valuation

[Dividend Watcher]

I think your guidelines are pretty good but I'd look at more factors.

• Debt/Equity or Debt/Total Capital - It may be higher than seems safe but is normal for the debt loads for this company in the past and for its peers. For example, utilities in the US have a high debt load but that is normal for this capital-intensive industry and as long as it's in-line with its peers I'm OK with that.
  
• Current Ratio (Current Assets/Current Liabilities) - Again, is it normal for the company and its peers? I personally like it above 1.5 but there are many industries where it is consistently below that. For example, General Mills' (GIS) current ratio is around 0.8 yet it has been that way for over a decade and most of its peers have similar records.
  
• How long has the company been in business? Is this an upstart with a P/E of 30 (eek) or have they been through several recessions that have tested management's abilities.
  
• Do peers have similar stats? Do they all have high P/Es and similar growth rates or is there some 'story' that has elevated ABF's expectations.
  
• Is their some new product line that is promising to bring big revenue and earnings increases that will materially affect the bottom line? Peter Lynch in One Up On Wall Street talks about Hanes bringing the Leggs panty hose to market having a big affect on total sales and earnings. If P&G (or someone else) had done the same, it would have barely moved the needle. Secondly, if so, are many people you know talking about it or buying it?
  
• Have you read their annual reports? What's management saying? Is it plausible?
  
• What's cash flow doing? Is it too growing at a rapid pace? Do they have a lot of cash on the books?
  
• If numbers seem out of line in one year, are there non-cash charges (such as depreciation or writeoffs) in the earnings reports to explain it and does it seem it will inhibit the company's growth?
  

These are just some of the other factors I look at. There may be others as I go through the financials and read some more in the press. The more you know, the more questions you may have and also the more comfortable/uncomfortable you may feel about the company.

That being said, I found a dearth of information over here on this side of the pond. I couldn't even find a company profile that described the business in my short search. My brokerage has no information about the company except a few headline listings. I could hardly find anything on Yahoo.com except this in an article talking about currency rates:

Quote: Discount fashion retailers who purchase the majority of their inventory from China using U.S. dollars are facing a difficult decision— reduce margins or pass the rising cost of supplies on to their consumers.

Companies like H&M Hennes & Mauritz AB (OTC: HNNMY) and Associated British Foods plc (ADR) (OTC: ASBFY), the parent company of Primark, purchase well over half of their inventory from Asia in U.S. dollars.

Now, investors wonder if the stores' loyal following will continue if the rising costs are passed onto customers.

I quickly went to their web site and see that not only food & ingredients, they also sell clothing (which the article was talking about). Retail/fashion & soft goods is a fickle market and problems there could affect results materially. [pun intended]

If it were me, I'd be especially worried about opening a position at a P/E of 30 unless earnings have been growing at a commensurate high rate (probably 16% or more) for a long period of time -- 5 or more years. In that case, everyone already knows about it and the price has been bid up such that a couple a bad quarters could be an eye-opener for you.

As Chad said, V or MA may fit in this category but for me their yield is too low. You're young so maybe you're willing to take the chance.