Lee and Paul:
Paul is of the opinion Of all the parameters you might watch for valuation purposes PSR is one of the worst (ranking slightly above book value in my opinion).
James O'Shaunessey has backtested just about every valuation parameter over mucho years of data (either 30 or 50 years, I don't recall right off hand), and has found that PSR is the best single predictor of which stocks will outperform. Go to the library and check out his book What Works on Wall Street.
Unfortunaly, buying low PSR stocks would pretty much keep you out of Tellabs, as its PSR seldom, maybe never, gets very low. TLAB's PSR ranges from 1.3 to 8 over the last 6 years or so.
www1.wsrn.com
What buying low PSR stocks will do is keep you from buying companies that are current favorites of the momentum crowd, only to see them plummet on the first sign of bad news. It will also put you into stocks that may have been unfairly beaten up and may have good recovery potential.
Instead of looking blindly at row upon column of spreadsheet calculations, you also have to factor in things harder to quantify, like what kind of management runs the show, what is the competition up to, how much and how effective is the companies R&D, etc.
Lotsa luck,
Alan |
