Joe,
I didn't mean that P/S, P/B, and PE are useless ratios. In fact, I think that P/S and PE are important, although I would argue that in most cases P/B is a poor valuation method due to the way things such as long term fixed assets, goodwill, and the value of IP, patents, etc, are accounted for. I was trying to say that you have to look at other factors at the same time. Let's say that a company has an important new product on the way that is expected to significantly increase sales and profits. Would that company justify a higher P/S, P/B, and PE than its one year trailing growth rate? What if a company has a clear market advantage and lead in their industry and is down only because of a cyclical downturn in the economy. Would that company justify a higher P/S, P/B, and PE than its one year trailing growth rate? What role do longer term growth rates play in your analysis of P/S, P/B, and PE? That is what I meant by "simplistic", and I apologize if it came across wrong.
Like many technology stocks, ORCL is being hammered primarily because we are in a bear market. It has little to nothing to do with their earnings potential in my opinion, and I am confident that the stock will trade a lot higher during the next economic upturn. I also think that the stock will bottom and turn higher several months before the economic upturn is evident in the Government's data. If you think that the economy will be better off in 6 to 12 months, you should be buying stocks into the recent weakness in my opinion. You might not pick the bottom, but if you buy a little here and a little there on the way down, I think you will do well. Of course, you can't just buy anything, but I think that ORCL will do well over the next year using that type of strategy.
I am confused by your comment <I would also be weary of justifying values based on past parameters.> Isn't that what you are doing when you say that ORCL is expensive based on trailing P/S, P/B, and PE? |
