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Strategies & Market Trends : Moomin Valley (formerly Troll-free Zone) -- Ignore unavailable to you. Want to Upgrade?

To: Moominoid who wrote (99)	8/16/2001 9:21:22 PM
From: Moominoid	Respond to of 2852

Big fat juicy grub <eom>

To: Moominoid who wrote (99)	8/16/2001 9:36:20 PM
From: Wayners	Read Replies (1) \| Respond to of 2852

Well for one, Michael Murphy's book gives a few ways to calculate downside risk values for tech stocks. One common valuation measure he cites for companies getting taken out is 1 times 12 mos trailing revenues. Thats one of 3 measures he cites. Instead of just taking him at his word, decided to test the theory with a real scatter chart. I even drew a regression line through the scatter data, and sure enough its pretty close for the whole scatter diagram. Individual stocks however can be a totally different story. The next thing I did was try to figure out why some stocks had really high ratios and others didn't. I tried to find a correlation with revenue growth rate and return on equity and couldn't really fully explain it. Just did the plots for the first time today and thats all I got done. In the past I've tried to look for correlations between earnings growth and stock price and revenue growth and stock price--both year over year and sequential. What I found is there is no relationsip between earnings growth and stock price, but for most stocks a most pronounced and definite relationship between stock price and qtr to qtr year over year revenue growth. Some stocks are truly amazing in this regard... even ones that make money. One theory for why this is true is that its a lot easier to fudge the earnings numbers, but not the revenue numbers..the theory being also that if a company can't at least maintain the sales growth numbers, then there's no way they can keep up earnings growth either for very long either. Personally I think all the stuff about P/E, PEGS etc. is hooey...thats been my eyeballs opinion after plotting hundreds of charts and compared them to stock price. I'm a firm believer in the revenue numbers as my first fundamental look at any company. Companies going from negative revenue growth to slightly negative, zero or positive revenue growth get snapped up by the street. The typical earning growth numbers are so all over the map with no predictability or curves to them as to be just about worthless for predicting future stock prices. There is one snag that is apparant. Its pretty obvious that the smart money is getting telegraphed the sales numbers for a quarter right about mid quarter for most companies. I think whats going on is people are obtaining figures like DSO, inventory and most importantly order/order backlog numbers either from suppliers and distributors or investor relations. I tend to think that investor relations isn't giving out this info but I could be wrong.