Ok .... let's talk about this variable "Price" and what you infer you are relating it to ...
I'm fine with the P/E ratio because the Denominator "component" that you refer to is the Earnings per Share derived, at least, from the END RESULT of a company's TTM Income Statement. That's a fairly relevant number. And what one is saying with regard to a P/E is that, in theory, it will take "X" number of years to get the money back that you paid for the share .... e.g. P is 10, EPS = 2 per year, so it takes about 10/2 = 5 years for shareholders to get their money back, i.e. P/E is 5.
But what about a P/S .... you are comparing P to the Sales (S) per share, where "S" is the Top Line of the Income Statement. BUT what happens AFTER "S" in that Income Statement ? For all one knows that company has LOST MONEY by the time one gets to the Bottom Line !
ANY company involved in Selling something, i.e. a product or a service, etc, has SALES. BUT what really matters is whether or not it makes a PROFIT from its business. And, generally speaking, one only knows that by checking its BOTTOM LINE, NOT by looking at its TOP LINE and comparing that to its Price.
AND, on top of it, "P" can VARY ! ..... I don't see the point.
And what about P/Bk .... So one is saying that if P/Bk is less than 1 then that's getting into "Bargain" territory because if one is paying less than the "Book Value", i.e. LIQUIDATED VALUE, of a company then one is getting into that company at a Discount. But how sure can one be as to what the Liquidated Value of a company will be ? If that company stops its business and liquidates, i.e. sells off its Assets, etc, will it get that amount of cash such that it can distribute it to its shareholders as per its Balance Sheet value ? Who knows ....
And then, on top of it, today its P/Bk is, say, 0.9, but next week its price goes up slightly, i.e. it VARIES, and its P/Bk is now 1.1 and you're out of that "bargain" territory ...... I don't see the point.
And then, with regard to EV .... I'm not going to put forward a relatively lengthy discussion about it because I did two posts about EV in the past, namely ....
Message 32324084
Message 32267542
Suffice to say that EV = Market Capitalization + Market Value of Debt – Cash and Equivalents,
And Market Cap. = CURRENT Share Price x Number of Shares .....
And EV is supposed to represent what a buyer should be paying for a company. But that could be a certain value, THIS WEEK, but, say, 2 or 3 weeks later, because of its Price VARYING, it could be a very different number ..... I don't see the point.
JMO.
bruwin |
