Bob Brinker: Market Savant & Radio Host Message Board

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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host

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To: Diamond Jim who wrote (8188)	10/5/1998 6:03:00 PM
From: Wren	Read Replies (1) of 42834

I have trouble with the concept that as long as earnings are growing at any pace, no matter if very slowly, that stocks will go up. I still think there is a relationship between rate of earnings growth and P/Es. Companies with above average growth rates deserve higher P/Es of course. But shouldn't stocks of companies with diminishing growth rates have diminishing P/Es also. Depending on the relationship of the earnings growth rate and the P/E, diminishing rates of earnings growth should either slow the rise of the stock, cause no growth in the stock price, or cause the stock price to decline. This is certainly the case in the high fliers. Miss the analysts estimated earnings a few cents, and the stock drops like a rocket. I believe this is true for all stocks, but not as extreme for the low fliers. A slowing rate of growth results in a slowing or dropping stock market, IMO. I believe that is a lot of what is going on now - anticipated slowing earnings growth is dropping the high flyers a lot and the low fliers and mid-level flyers also.

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