07-12-2015, 01:11 AM
Amos, welcome to the forum!
Before I begin and since you are new here and also a new investor, it would help if you told us a little about yourself in the Introductions section. At various stages of life, our replies may be worded differently depending on the circumstances. Regardless, glad you're here. Now let's see if I can help answer anything ...
First, as a new investor, you may feel overwhelmed with all these terms and concepts at first. Don't be intimidated; eventually you'll know what everyone is talking about and you'll be knowledgeable enough to discern what's of interest to you.
This is a tough one. To see why I say that, you might want to refer to my equity primer I wrote here. It may be instructive to read through the example company section where RoE varies so much yet the company's business results don't change.
Everyone wants a company that has little to no debt. However, debt, when used responsibly, can help a company grow. When they use it to invest in plants or major equipment, this can be to a company's benefit over the long term.
Personally, I usually screen for debt/equity of <80% (<40% of debt/capital) for most stocks. Utilities often have large outstanding debt balances. To see if debt is out of line, you may want to compare the company's balance sheet with others in the same industry.
P/E has an enormous importance in evaluating whether the stock price is at a fair value or not. To answer more fully, I'll quote Chuck Carnevale over at Seeking Alpha:
The full article is here.
I am assuming you mean payout ratio or how much of net earnings is distributed through dividends.
I personally prefer it under 60% to allow cash retention to be used to grow the company. Again, utilities tend to have higher payout ratios as well as some large corporations that don't have a need for high cash balances to keep the company growing.
Again, I refer you to my equity primer linked above.
Depends on what your are looking for in a company. Positive is a good starting point. I prefer it above 5% going forward but not so much for past history.
Depends on how you define book value. Again, the primer on equity would help explain my tendency to ignore statistics containing equity without a deep dive into the balance sheet and its attendant notes.
To me, P/E is much more valuable than P/B.
Hope that helps answer your questions somewhat. If you're still confused, ask away.
Before I begin and since you are new here and also a new investor, it would help if you told us a little about yourself in the Introductions section. At various stages of life, our replies may be worded differently depending on the circumstances. Regardless, glad you're here. Now let's see if I can help answer anything ...
First, as a new investor, you may feel overwhelmed with all these terms and concepts at first. Don't be intimidated; eventually you'll know what everyone is talking about and you'll be knowledgeable enough to discern what's of interest to you.
(07-11-2015, 02:27 PM)Amos Wrote: Debt/Equity: Is there any recommendation about the DE of a company that I should consider?
This is a tough one. To see why I say that, you might want to refer to my equity primer I wrote here. It may be instructive to read through the example company section where RoE varies so much yet the company's business results don't change.
Everyone wants a company that has little to no debt. However, debt, when used responsibly, can help a company grow. When they use it to invest in plants or major equipment, this can be to a company's benefit over the long term.
Personally, I usually screen for debt/equity of <80% (<40% of debt/capital) for most stocks. Utilities often have large outstanding debt balances. To see if debt is out of line, you may want to compare the company's balance sheet with others in the same industry.
(07-11-2015, 02:27 PM)Amos Wrote: Price/Earning: Same goes here. I know PE is per sector and 15 for one company can be consider as normal and high/low for another one but assuming it fits into the other "rules", does it have any importance?
P/E has an enormous importance in evaluating whether the stock price is at a fair value or not. To answer more fully, I'll quote Chuck Carnevale over at Seeking Alpha:
Quote:First of all, I do not believe it's a mere coincidence that the 200-year average P/E ratio of the S&P 500 has also been approximately 15. A complete understanding of the P/E ratio as a valuation metric includes the realization that it is also a short form DCF (discounting cash flow) formula in its own right. A P/E ratio of 15 represents an earnings yield of 6.67%. (This calculation is easily made by reversing the numerator and denominator of the P/E ratio to E/P.)
Additionally, a P/E ratio of 15 represents a valuation metric of a current earnings yield that also closely correlates with the long-term rate of return (6% to 8%) that stocks have delivered when valuations were aligned with intrinsic value (P/E 15). Without further elaboration, my contention is that a 6% to 8% return is a rational expectation of what a typical or average company can be expected to generate over the long run. Admittedly, P/E ratio of 15 does not apply to all stocks, but research, observation and long experience have convinced me of the relevance and importance of the P/E ratio of 15 as a valuation guide.
The full article is here.
(07-11-2015, 02:27 PM)Amos Wrote: payment/ratio: Any recommendations here?
I am assuming you mean payout ratio or how much of net earnings is distributed through dividends.
I personally prefer it under 60% to allow cash retention to be used to grow the company. Again, utilities tend to have higher payout ratios as well as some large corporations that don't have a need for high cash balances to keep the company growing.
(07-11-2015, 02:27 PM)Amos Wrote: Return on Equity: Any recommendations here?
Again, I refer you to my equity primer linked above.
(07-11-2015, 02:27 PM)Amos Wrote: Past 5y growth and Estimate 5y growth: Any recommendations here?
Depends on what your are looking for in a company. Positive is a good starting point. I prefer it above 5% going forward but not so much for past history.
(07-11-2015, 02:27 PM)Amos Wrote: Price/Book: Any recommendations here? Which is more important here, if at all, PB, PE or both?
Depends on how you define book value. Again, the primer on equity would help explain my tendency to ignore statistics containing equity without a deep dive into the balance sheet and its attendant notes.
To me, P/E is much more valuable than P/B.
Hope that helps answer your questions somewhat. If you're still confused, ask away.
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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