Exactly, Shane! Sorry I garbled the name of the book (apologies to Moore), but we share almost the same thoughts on the issue. Moore makes a very important point which is quite consistent with Buffett: long after the Gorilla has emerged it continues to surprise the street with better than expected earnings. Michael Murphy points out that very few analysts cover these companies in any detail, so this shouldn't be that surprising.
When you get the issue of valuation sorted out, let me know! That has been a festering wound for me, and that's why I developed the CNPEG. In case you missed it, this is how it works:
You estimate next years earnings yield and divide that by the expected long-term growth rate of the stock. You do the same for the S&P 500, and divide that number into the one for the stock under consideration. If the CNPEG is less than 1.00 it says that growth is cheaper with the stock in question than in the S&P500. For example, NETA has a CNPEG of around 0.29. That means that relative to the S&P500 its growth is trading at roughly a 70% discount to the broader market.
Happy New Year all,
TTFN,
CTC |
