Neil,
The fool's ratio is a tricky indicator because you get very different results depending upon what growth estimate you plug in. For many companies, the 5 year estimates on growth are considerably lower than their current rates of growth. I've noticed some people simply use the estimation for the next 12 months, while others use a longer term growth multiple. The other thing is that the fool's ratio works best on moderate growth companies. If you have high rates of growth compounded over several periods, you will find that the fool's ratio underestimates the value of higher rates of growth. In this case, PEGA has very high rates of growth and so will likely outperform companies with lower PE's and lower rates of growth even when they have the same fool's ratio. I think PEGA will do very well, though perhaps Vantive is a better value based on price. In both cases, the companies have been exceeding earnings estimates pretty handily, which again results in the fool's ratio underestimating the company's moving value (present value + future prospects). My main interest is in finding quality companies that I think will perform well over time. As Warren Buffet once said, "It's better to buy a great company at a fair price than a fair company at a great price." (My corollary is if you can find a great company at a great price you've really got something).
Thanks for the suggestion on TRII. I looked at it very briefly and couldn't determine a lot except that it has had very positive price action and an operating loss. Maybe I need to look more. I couldn't find anything on SI. Do you have some good information sources? I'm curious: what kinds of earnings estimates did you see and whose were they? I have some concern about putting much money into IPO's since they tend to be very vulnerable to selloffs after the lockup period when more shares are suddenly available for sale.
If you would like a high growth/low price situation, you might check out PairGain (PAIR). Their recent selloff makes the risk/reward relationship very favorable. Of course, I own it so consider the source and do your own investigation. Good luck.
Baird |
