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Strategies & Market Trends : The Rational Analyst
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To: ftth who wrote (1044)6/4/1998 3:38:00 AM
From: HeyRainier  Read Replies (1) of 1720
 
[ FILE Discussion ]

Dave, here's a 4 Quarter rolling plot of FILE's earnings since 1993:

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Disregard the dates on the bottom (this is a dummy stock shell, so dates aren't important). Each column represents one quarter of earnings. While I wasn't able to overlay one over the other, I think you might be able to see the anticipation mechanism of the market with regard to FILE's earnings--it appears that the stock price reacted in anticipation of the improvements to the bottom line.

I also plotted a momentum function of the company's earnings on the bottom. If I converted the periods properly, it should translate to a 6 Quarter period for the momentum. The peaks and troughs are "painted" on the EPS plot, and are evident from the momentum chart.

If we were to try and predict future prices with this overly simplistic(and perhaps unrealistic) model, then the longer term price concerns wouldn't materialize until about six quarters from now, when earnings momentum growth peaks and slows.

Note the smooth nature of the expected future EPS growth. I think this is a bias many analysts have when projecting for future growth. They think everything is going to go smoothly from now on. Given this company's rough earnings history though, this is probably going to be an unlikely scenario.

Well, I'm tired. While this has been an interesting discussion, I'm not sure we've gotten anywhere with this little aside. At least it was interesting.

Regards,

Rainier
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