<<john, what is PSR? 3.0 ? I appriciate the above info. is 1.4 good or 3.2?>
Sonki, PSR = price/sales ratio. All other things being the same, a smaller PSR is better. PSR is equal to the revenues divided by market cap, and also to the p/e times the net margin.
For companies with cyclical earnings, I would rather use PSR than p/e, especially going into or out of a down cycle, since PSR doesn't fluctuate as much as p/e, and can't go negative.
For most industries, a stock with a PSR < 1 is said to be a real value. That really overlooks a lot, though, since profits and growth prospects are more important than revenues, and the net margins and growth rates of different industries and companies aren't the same. A construction co., for example, might routinely trade at a PSR of 0.2 due to low margins and high capital requirements, while a drug or software company, with its very high margins and low capital requirements, might have a PSR of 5. AMAT always has a much higher PSR than Lam because AMAT has a financial model that gives it a higher net margin. That doesn't make AMAT or Lam the better stock -- it's just a difference you have to be aware of when comparing the two. If you already know you are interested in a particular company, you can compare its p/e or PSR to its historical range to see if it is in or out of favor. AMAT was certainly out of favor last summer, when it could be bought extremely cheaply.
<< I have
been in /out of amat from $26 last fall till now @62.
I am out. i want to come back in and stay. I get nervous when my stocks do so
well and I sell. What is the right fundamental price to come back in at?>>
I would sell a stock if its valuation getting extremely unreasonable given the business prospects for the company. That's a lot different from selling a stock because its price has gone up.
<< I
thought it was well ahead of waht it should be so i bailed out before earning.
This time i will stay if I can only come
back in.... do you have target price for amat?>>
I would focus not on the price, but rather on the price ratios: p/e, PSR, and p/b, and then decide what benchmark you will compare them too, such as growth rates using a PEG analysis or the company's own historical range of these ratios.
If I owned AMAT and I were a long-term investor, I would hold it now. But if I owned nothing, and I wanted exposure to the cyclical upturn and growth of the semi-equip industry, I would buy something else that is a much better value. |
