Gottfried, <<.. explain to me how you calculate stock valuation?..>>
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You can 'estimate' stock valuation by comparing an estimate of future annualized earnings growth with the price to earnings ratio (PE) of the stock.
It is a matter of personal preference whether the earnings used are 'trailing'
earnings (the previous four quarters), or future earnings (usually the current
fiscal year).
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In addition, the historical range of PE should be considered, allowing for the growth expectations which accompanied it in the past.
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PE can be maybe 25% above the expected growth rate, but certainly not much
larger without implying overvaluation.
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In the case of LLTC, a PE of 30 or so is reasonable, with an expected growth rate of 25%. The historical PE range runs up to 40 or so, but past growth rates
were higher due to what turns out to have been excessive inventory accumulation by customers. Applying a PE of 30 to the projected EPS of $1.70 for the fiscal year ending in June, a fair value would be $51, increasing by about $1 per month or $12 per year as time goes on. Obviously, psychological
market conditions help determine the actual price, as fear and greed modify confidence levels and also change the future time frame being considered.
Regards, Don |
