To: Eric L who wrote (23644 ) 4/26/2000 8:32:00 PM From: Mike Buckley Read Replies (2) | Respond to
I really do wish you folks wouldn't ask me to read the stuff Jubak writes. :) I respect so little of his approach to financial journalism that I don't know that I can read him with any reasonable degree of objectivity. But I'll give it a try regarding his piece about valuation.PEG Ratio I hope for his sake that he doesn't really uses the same ratio defined in his link. That ratio incorporates the estimated growth only over the coming year. Because companies can have huge distortions (both good and bad) and because analysts' expectations can be very, very wrong in the short term, I prefer using estimated growth going forward at least 6 quarters and when possible 8 quarters. There are rare times when the analysts' information about their expectations is only available going forward one year. When that's the case, I don't take the PEG ratio particularly seriously and instead prefer to wait until analysts' published estimates are pushed out further.PE Ratio Typical of his written version of sound-byte journalism (can you tell that I really think this guy does a disservice to individual investors, especially the novives?) he provides a link defining the PE component of the PEG ratio. It makes no mention of the importance of using trailing earnings excluding one-time charges and gains. That he is discussing this in the context of growth stocks that regularly have one-time charges and often have one-time gains without clarifying the issue is irresponsible in my mind.Forward PE Ratio I'v never understood the point of using a forward ratio. It doesn't hurt to use it but the only reason to use it is as a modification of the non-forward ratio. Instead of trying to use a hoard of ratios that establishes the outcome of 1.0 as fair value, I prefer to stick to one ratio, to learn its nuances insiide and out, backwards and forwards, and make mental adjustments to how I interpret the results. It's just my way of doing things, a way that probably represents about 0.0000000001% of the investment community.Comparing Coke and PMC-Sierra I do like the way he did that because he shows that PEG ratios can't be used in a vacuum. It doesn't matter whether or not we agree with him about his assertion that Coke has a high degree of risk of attaining estimates or that PMC has a low degree of risk. The important issue is that as an investor we must come to those conlcusions as he did to be able to realistically apply the PEG ratio or any other valuation metric.Typically sloppy journalism In his example of a stock that looks cheap relative to its growth story, he cites AMAT's PEG of 0.36. In his very own link to the PEG ratio it properly mentions that it's not good to use that ratio with semiconductor companies. All of AMAT's customers are semis, making the PEG for AMAT highly suspect in my mind. There might be a gazillion reasons supporting the contention that AMAT's stock is cheap relative to its growth story, but the PEG doesn't do it for me.
