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Microcap & Penny Stocks : VLVT (was CSMA) -- Ignore unavailable to you. Want to Upgrade?

To: franco who wrote (564)	11/17/1997 3:23:00 AM
From: TraderGreg	Read Replies (1) \| Respond to of 11708

A P/E of 50 as a stock turns profitable is not as absurd as it may sound. Let me give you an example for stock A: Year 1 Price=.50 EPS= -.10 P/E= -5.0 Year 2 Price=.75 EPS= -.03 P/E= -25.0 Year 3 Price=1.00 EPS= .01 P/E=100.0 Year 4 and later P/E values will be dependent upon the growth rate of the company's earnings. Notice that as the stock turns the corner from losing money to profitability, the P/E goes from irrelevant negative values to this high positive P/E. If everyone can agree that year 1 and 2 prices are realistic, then should the price in year 3 fall to ten cents just so that the P/E is not too high? If a stock had been trading at say $8 while earnings were negative and then earnings were +1 cent, would its stock price tank because an 800 P/E is too high? See my point? With AdHatters kicking up and EnviroTech growing, then in that first transition year, positive earnings will accrue, interest in the stock will increase and the P/E will initially be very high. The rate that the stock price will increase from that point on will be driven by the rate of increase in earnings per share. This is the PEG(P/E divided by Growth Rate) that I referred to previously. The reality is that stocks nominally trade at a P/E value that is 1 or 2 times the growth rate. In some industries, this PEG is even higher. But a company growing at X percent per year can at least be given a P/E of X in the near term. If you can buy into 50 % growth rate then a 50 P/E is reasonable for the near term. OK? TraderGreg