The problem with PE ratios when the cycle is on the way down (the forward actual results are going to deteriorate to less than the current current forecasts) is that the analysts never lower their forward EPS numbers enough. We all know WDC's EPS is going to decline next quarter, but we don't know if that is the trough the EPS heads up two quarters from now, or that is just the beginning and the EPS is going to decline for the next 8 quarters in a row.
Analysts will never forecast the disastrous latter outcome. As a result, on the way down their forward EPS forecasts are 1 - almost always too high, and 2 - meaningless, since they also don't know the depth of the downturn.
It looks like to me that MU and WDC have some very good numbers compared to the other stocks in the table.
garbage in garbage out.
For price to sales and price to book value, all of these stocks have been through these cycles so these trough metrics exist. The idea is when AMAT had $500 million in maybe sales maybe it bottomed at 2x sale, and now that they have $5 billion in sales, all else being equal, perhaps this time it will also bottom at 2x sales. Something like that. Same discussion with price to book.
But there is no guarantee the previous price to book or price to sales will again be the bottom this time. If this down cycle is worse or better than previous down cycles, that affects things. And if AMAT's market position is worse or better than it was in previous down cycles that also affects the bottom valuation.
I used to be a semi cap equipment analyst (for a whole year!) at a i-bank in the late nineties, and we had software services that provided historical data which could product price to book and price to sales charts, with lots of options to modify the data, and it was useful. I have no idea where you can get that historical data for free on the internet, but it exists in proprietary software data package solutions. |
