You made a good point that the PE ratio of 15 on the current year's earnings and 11 on next year's earnings make this an outstanding buy at this price. It is definitely undervalued when compared to the high-priced growth stocks, or even to the S & P 500.
Also, consider this point. Next year's earnings, beginning June 1, are estimated to rise from .30 to .40. My calculator says that this is a nice gain of 33%. Now, if you compare the projected PE ratio of 11 to the projected earnings growth rate of 33%, you come up with a PE ratio to earnings growth rate of .30. Many people like to use this ratio as a guide to finding stocks with the potential to outperform the market average.
The guideline is that anything below 1.0 is favorable, which means that the earnings growth rate is exceeding the PE ratio. In our case, PCTH has an earnings growth rate that is triple the PE ratio. There are two reasons I like this:
If we are in a bull market, this gives PCTH a good chance of beating the average stock.
If we are in a bear market, it gives support through the combination of a lower PE ratio and a greater earnings growth rate than the average stock.
I personally am concerned about the possibility of a bear market developing, and can only be in the market, if I feel that I am in a relatively safe stock that has a big potential reward to go with the risk. (Plus, I have a fondness for relatively unknown, undiscovered stocks that have a real chance to be a big winner). This is not a reccommendation to buy this stock or any other security. Buyer beware, enter at your own risk, etc. |
