SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : Value Investing
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: James Clarke who wrote (1399)6/21/1997 1:44:00 PM
From: Paul Senior   of 78748
 
James: I've used a formula to relate price/book to ROE to value point for many years. Sometimes it works. (not very effective with stocks that have very high ROE compared to very low book. (e.g. software companies). For an example of how it might go: if a company has a book of $10 and and an ROE of 10%, the question is what is the fair value of the company given its current price?
Fair value (model will determine) is about $10, so you know you want to pay not more than $10 for the stock. How about a stock with $10 book and 20% ROE? Well you know you are willing to pay more for this stock... how much more? Model might show fair value to be $20. How about crummy ROE of 6%? Well again, the model will here show fair value of about $6 (if book is $10, so company might be a buy at under $6. Of course as you point out, entering in point estimate for ROE can be a dangerous assumption. ROE's do fluctuate. For low ROE's one hopes management can do better, and for high ROE's one hope there is a sustainability. Paul
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News