Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: gdichaz who wrote (1454)	4/24/1999 9:45:00 AM
From: Mike Buckley	Respond to of 54805

Chaz too, Curious about your views on this post [about PEs and growth rates] on the Q thread. It was pretty much a non-event for me. Ramsey (the author of the post) is absolutely right that a company growing 30% a year whose stock consistently sells at a PE of 30 will yield far better financial returns than a company growing 10% per year whose stock is selling at a PE of 10. The reason it's a non-event for me is because it's such a no-brainer to understand that. I'll add one clarification that might shed light, but most people following this thread will NOT find this to be new information. One of my primary investment strategies is to look for imbalances between PE and the growth rate. If a stock is trading at a PE that is one-fourth or one-half of its earnings growth rate, it doesn't matter whether the growth rate is 10%, 20%, or 30%. A dramatic divergence between the PE and the growth rate does present a very compelling opportunity assuming all the other fundamentals are in place. As an example, I very recently bought Total Renal Care (TRL) the day after it tanked 60%. Weeks later the stock is up 45%. The company DID experience a problem, but my assessment was that the market over reacted big-time. I believe the recent 45% run-up is easily justified by the company's fundamentals that the market temporarily overlooked, fortunately for me. The point is that I don't even remember TRL's growth rate. Was it 10%, 20%, 30%, or 40%? Heck if I know. But I do remember that the PE was substantially below the growth rate, presenting a short-term opportunity. (I don't have the slightest idea if the stock is a long-term opportunity because I'm not interested in adding it to that part of my portfolio.) There are other examples. Twice in the last year Remedy presented similar opportunities. Sadly, I was quick enough only to capitalize on one of them. Darn! --Mike Buckley