Jeff:
“Historically, PE has hovered around 12-15 for the general market, compared to around 20 currently. Remember, PE is a measure of the premium people are willing to pay for a stock. There really is no justification for this in my mind other than "investors" have lost sight of what makes a good "investment" vs. a good "play".”
There is every justification if the investor believes the current investment dollars will be worth more in the future. THQI had a one point a PE 55 in 1995. Was that too high? No because future earnings justified the current valuation. People are paying premiums for the large caps stocks because of earnings prospects, leader in the industry and high liquidity. A low interest rate/low inflation coupled with rising productivity and high consumer confidence has propelled this market for years. There is the risk of a collapse if any of these factors change. The most expensive stocks (high valuation) will be hit, but unfortunately the small caps will lead the way down and take the most time to recover.
“When people begin investing individually vs. through brokerages, there can only become less consistent results to follow. The brokerages have typically had some sort of reason to their madness, while individual investors are more prone to act emotionally. I think all you have to do is look at the volatility of the general market over a 15-year period, as more individuals have begun investing on their own, and you can see what I mean.”
Jeff, I don't agree at all that individuals are the cause to the market volatility. When the market corrected back last fall it was the small guys that stayed put. The big fellows ran for the tall grass. Brokers want clients to trade, trade, and trade. They can't make the commissions when one investor buys and hold for the long term. Blame the institutions who dump stocks on the slightest bit of negative news (and on good news as well). David and Tom Gardner (the Motley Fool) stated, “ You and you alone are responsible for your money. Don't hand it over to the so-called money experts.”
“I think not! THQI is moving along quite nicely, and these other companies are moving farther and farther into la-la land. A PE of 300 is reality? I think NOT! What kind of "investor" is willing to pay a 300x premium for ANY company? None, no investor would pay that kind of a premium, barring a very unusual circumstance, but "players" will gamble on this given poor long-term historical insight into the market.”
AOL has a PE of 396. Those who pay for that are expecting a return on investment greater that the market average. So far they have been very, very well rewarded. And others like INTC and Clorox has given shareholders many times their investment dollars by executing a well thought out business plan. Not one can argue that these companies haven't delivered for the shareholders. And as long as the companies deliver the growth in both the product line and earnings, these stocks can demand the current and higher multipules.
“Ain't gonna happen, and for the "investors" that simply hang-on, they will be "rewarded", actually they will "earn" what is deserved, while the players will be "punished" for making poor decisions. Don't lose sight of the fact that THQI at a PE of 12-20 is "fairly to undervalued", and has limited downside potential but much greater upside potential. A play at a PE of 300 has limited upside potential, but a HUGE downside potential, good luck to those that take that route. “
All investors will be punished if the market turns for the worst, not just the high PE stocks.There is risk in every stock. S&P ranks THQI as a small-cap, "HIGH" risk stock. Look what happen last fall? THQI sunk to 10. Was that justified? Of course not. In fact those most expensive stocks came back stronger after the fact than the smaller value plays. Why? The “smart” money was chasing the stocks with the greatest potential for price appreciation. And a PE of 300 could be valued as “cheap”. Stocks with very high multipules can have enormous upside potential. YHOO's PE is 1412. Do you hear the shareholders that bought that one when the PE was 300 complaining now? DELL has split 7 times in 7 years and has usually had a much higher PE than the S&P. FTR: I don't own YHOO. I do AOL and DELL.
“I'm frustrated by people's reactions to unexpected turns in the stock price. This stuff just happens, and there is nothing we can do to stop it. Given that, it does not make sense to change or shift one's investment strategy simply because this happens. “
Why? Stuff just happens? Please! There is reason for every reaction, both positive and negative. Jeff, should we all be jubilant the stock dropped 20%? This has occurred more times than I can remember. Is there something the institutions are not happy with? Someone dump a lot of shares for some reason. I could see it IF the company failed to meet expectations. I put part to the blame with BF. PR for THQ is been lacking IMO at least when it has come to earnings. There is no reason the company can't guide analysts more actually on the forecast of quartely EPS. Blowing away the estimates has definitely not helped the stock price.
Sometime ago a poster here stated he believed the sell-off in THQI was due to BF not guiding analysts correctly when it came to earnings. His conclusion was THQI was insulting (I remember him saying pissing off) analysts by blowing away estimates. Well at that time I didn't agree with that statement but something really did trigger a sour tone this time.
Going back to an earlier comment about valuation: Suppose THQI reaches say $40 in the near term. Is the stock then overvalued, fairly valued or still undervalued? I'm curious to know at what price should the stock be trading at to reflect what the company has already accomplished and what is still to come. At what price does one say THQI has too high of a multiple? But even more importantly what happens is the company doesn't beat the street by such a wide margin next time? At what point does the stock just maintain a level of value? I know in the long term it doesn't matter what the price does short term. I question what happens long term if the company fails to surprise.
“I'm staying in THQI, this is one of the best run small caps I have seen, I am no seasoned investor, but I am also a small business owner that recognizes a well thought business plan, and execution that as much as possible attempts to realize that plan. Carry on THQI, full speed ahead !!!”
And for the record, THQI is STILL my largest holding. I have not sold one single share. I did sell a portion of my holding back when the stock reached 30 in order to rebalance my asset allocation. But I have been buying since early February. I just hope there is nothing hidden below the surface that caused this fall.
I hope this response was not offensive or too much mumbo-jumbo. Just plain talk about what I'm thinking these days.
Kelvin
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