Читать книгу Cotter On Investing - John Cotter - Страница 15

Let me demonstrate how I use the PE to assess stocks.

The following table lists some stocks and their forecast PEs. For comparison, the market as a whole had a PE of 13.5.

Company	Forecast PE
ASOS [ASC]	70
Dominos Pizza [DOM]	33
Aggreko [AGK]	19
GlaxoSmithKline [GSK]	9
Xstrata [XTA]	9

The forecast PE shows that online clothes retailer ASOS is very expensive now after a period when it defied the recession with a share price rise of about 1500% over five years. After share price growth at this rate I suppose you would expect it to be expensive; and the PE shows it to be over five times more expensive than the average share. It may still be a quality company but without doubt you are now paying a high price for that quality.

Maybe more people like pizzas than I think, but the current PE rating on Dominos looks very expensive to me.

Aggreko is a global supplier of mobile power and has supplied events such as the football World Cup and the Olympics. It has been one of the stars of the FTSE in recent times with its PE increasing from nine three years ago to 20 at the time of writing. In other words, it has moved from a cheap share to a relatively expensive one. It is a company that I still like, but its present rating is a little high, which makes me think the stock price will, at least, pause for breath before resuming its growth.

The PE on Glaxo appears too low. It has moved from a growth stock to a value one with a PE of less than ten and a dividend of more than 5%. Have the heydays of the big pharmaceutical come to an end? Obviously, judging by its PE a lot of investors think so. It’s true that fewer new drugs will come to the market in the future; and at the same time more of the old ones will lose their patent protection and face competition from cheaper generic versions. In addition, potential litigation costs are rising. Obviously, different views abound – after all, that’s what makes a market in the first place. But I believe that this share is now too cheap. The present PE ratio would indicate to me that this company would justify inclusion in a portfolio as a lower-risk, high-dividend player. Although the growth potential is less than many shares, so is the downside. Successful stock investment is about investing in shares where the risk-reward ratio is skewed in your favour.

Finally, Xstrata [XTA] looks cheap with a PE of nine. Will growth in China and emerging markets continue to support the price of commodities? Obviously, this rating suggests that many think it will falter. However, this PE looks too cheap. In fact, many of the miners do. BHP Billiton [BLT] has a similar rating of ten which may suggest much of the mining sector is undervalued at the present time.

Obviously, the above views are purely personal and they have a limited shelf life. However, hopefully this quick overview demonstrates that when it comes to assessing individual shares PE ratios have a part to play.

In isolation they do not provide the whole picture, but they do provide a few pieces of the jigsaw. They provide a background against which the share and its current price can be assessed. They tell you whether the stock is cheap or expensive and once this is established you are able to make other value judgements. Used in this way, they can simply help you make more informed investment decisions.