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Season 1, Episode 8 · 1 year ago
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Season 1, Episode 8 · 1 year ago
Forward PE
ABOUT THIS EPISODE
Good Morning, everywen todays twentyseen mast, two thousand and twenty, and when come to today's topic, so what the market has been doing, sobfive hundred is as went up for two days now. It is down to point four: sevenpercent Dou Jon again went up for two last two days, but it is down to pointseven. Nine percent NASTAC is down today for two point. Eight percent andTASX is down for poin two six percent, and in this week there was a largestimulus of around two point: two trillion dollars that the Senate passed.Now it is going to Congress and in United States Theyre, giving stimulusto small businesses around two thousand Dolla per individual three thousandfour hundred doars for family so and...
...also baments a kind of bailoud packagefor large corporations. So market went up on news of that and in Canada we releasedaround hundred and hundred billion dollars worth of our own stimulas. Soacross the world there are a lot of stimulous packages being given, andmarkets are going up based on that news. So today's topic is forward P, soyou're going to discuss what is a p Rateo, what is forward P and how to useit with different stocks. So what is a paso is prise earning ratio. It ismarket price divided by earning per share. So you take the market price ofthe stock and you divide it by earning per share that it currently has, andthen you compare it with historical values. So let's say we are looking atApple, PA, Sho Appeis. Let's say twenty...
...five right now, so you compare what isthe average pratio in the past that the stock had so you either compare it withthe past or you compare it with with competitors like you, can compare applewith Samson, Microsoft, with IBM and so on and so forth. Now what is forward be in forward p? Wedo not take the current earnings, we project the earnings we project, whatwould be the future earnings of the company and then compare the P ratiowith historic P and it's an very good way of valuing a company finding outwhether the prize of that stock is right or wrong? Is it a good value inthat company or is it overvalued? Is it expensive, so forward? PEA can beextremely useful to find if the stock is cheap or expensive at the currentprice. So let's discuss few companies and tryto understand it in little bit more...
...detail and the first company that I amgoing to discuss his Royal Bank of Canada, R PC, it's a bank in Caladacurrent UARLINGS are nine. Now, if you see historic, P or averagehistoric P, LBC has an average historic P of around ten lowest pe that it has traredap tradedat is around five point Sixsex. Now what how do you do? FORWARDP FOR RBC,so first of fallow you have to project the earnings, so I obviously would notmaintain the earnings of nine in the next two years, they're going to bedefault that on its loans there are, there are going to be less money thatit gets, because that because people are not going to have sallaries so thetdeposits are going to go down as well as there would be loan defaults to soyou can expect a fifteen percent drop in the next two years in Abes's earningso Avrag journeing for the next two years could be around seven point: Six:five, instead of nine, so fifteen...
...percent drow in our nangs of albec inthe next two years so based on historic average P of ten and the drop earningsof seven point, six five. We can see the correct value of this stock of ourBCS. Seventy six point: Five dollars, seven point: six multiplied by ten, soit is seventy six point, five dollars, so current price of albcs. Eighty three,the correct value that we based it based on the forward P, is aroundseventy six. So it is expensive at current price. If you want to get intoour BC based on forward P, you would be looking at a prize of seventy six andbelow so that the valuation is justified. Now what are our asumptions?Yet we have taken an assumption of a fifteen percent drop in revenue if thedrop of revenue is more than our valuation is expensive. If the drop isnot that significent, if it gets a ten...
...percent drop, then we have got a goodstock at a very cheap prize. So this is how you do forward. Be The next companythat we are going to discuss this Texas Road House. It's an restaurant chain.Restaurants are going to be hit extremely bad, but it has a very goonthousand nine hundred and ninety three onwerds. It has been paying constantdividend, positive, cashflows and earning so it's a good stolk currentearnings at two point: Four: six historic average of P historic valuesof peas, around twenty and lows of peas, around thirteen point eight in the past.Now, if you want to project earnings for Texas Rodos, it is not going tomake two point: four six dollars per share. I see restaurant businesses havea massive drop in this quarter. They may start to go back again in the nextquarter and next year is all going to be. You know coming back, it will nothave any growth, so I see a sixty...
...percent drop in their average revenuesin the next two years. So if you see two point four six dollars of currenttearnings and future earnings of sixty percent drop, that means one point fourdollars, so it may not earn two point four six dollars that it is earningright now, so currect value based on one point, four into twenty: It'stwenty eightolrs. So if you want to invest in Texasord House, you would get into this stop belowprize of Twenty eight. Has It traded in the past billow? Twenty eight? Yes, itwas bilow twenty eight somewhile back, but current price is forty three. So atthe current prise of forty three, it is expensive. Nik next list. Let us discuss aboutApple Apple. As a current earning of twelve point, six very good stock lotof castflows positive earnings for last ten fifteen years and growing earningso a good value Stock Average P of apple is around fifteen and the lowthat it hastraried is around twelve...
...point four. So if you see future earnings with you project,future enimes apple is also going to see a massive drop it biggest. Marketfor Apple is United States and China. Both were close down and both are justgetting Chinese just getting back on its feet, and America is going to taketime. So I see, and thirty percent drop in the next two years, average of itsrevenue. So from twelve point, six earnings per share it can drop to eightpoint. Eight to earning per share, so correct value based on forward P, isaround one hundred and thirty. Two, so apple is currently treated at two fiftydollas, so it is extremely expensive as compared to Forwarte valuation ofhundred and thirty. Two, a Google Google as an current earningsof around forty ninedolrs historic low for its piece, twenty five dollrs, ahistoric average for P of Google, is...
...around twenty five dollars. Now I donot see any drop in googles revenue. Google is in fact, may growit revenue.Google has products like yout with has products, it has a serchd engine. Lotof people are staying home right now, they're watching Youtub a lot sorevenues for yout Google may actually go up, but I'm going to have a maintainearnings in the next two years. I'm not looking at any growth, so google, if itmaintains its earning of forty nine point, one six at a p Aso of twentyfive and below it rades around it should trade around twelve hundreddollars. So, if you're getting Google at a prize of price below twelvehundred dollars, it seems to be a good buy based on forward P. So if you look at the current prizeright now, it is oneone on five. So it's around eleven hundred andfifteendolar, so it is currently a valueby. If you were only looking atFORWARDP facebook. FACEBOOK is earning...
...his six point. Four, three dollrhistoric pes. Again, twenty five. Lo as ever trated is around seventeen. I see its earnings to be maintanedagain. FACEBOOK is not going to be hit extremely hard by this impetting recession or depression. Whatever you call it, so itmaintains its urning of six point. Four three. It in fact make grold surning,so correct value of facebook based on the prize is around hundred andsixtydolars. The current price of facebook is oneed and fifty five dollr,so at the current price, even it appears to be Valu at a cheap price. QALCOM Qalcomes a IGplay it's an electronic company that manufactured cheps. Current earning isthree point: Five, two DOL P: it has a alwas traded at a very high valuation,so historic five years average is...
...thirty low pse around twenty five, sofuture rearnings. I don't see it to have three point: Five, two dollar ofWurnings. It may see a thirty percent drop because it supplies a lot of itschips. To Apple Samsang and all of that SUF mobile sales, DROPP so does therevenue for Calcom, so it may have a thirty percent drop inits revenues in the next avrage revenues for the next two years. So ifyou multiply the historic P with the future earnings price comes to aroundsixty three dollars, so qalcom bilow, sixty three dollar looks to be a goodby currently prize of calcome is around sixty six dollars. So it doesn't appealto me right now. So next is Harley. Devitsen Harleydewitsen is strated around to Mintes as a p current ternings a round two point:six eight P, Rasho Harley is fifteen...
...and historic low of peas. Around elevenfuture earnings is IC, a sixty percent drop in Harley Devitzel, because it's amotorcycle company. I don't see people going out and buying motorcycles to theextent they were buying before and autosector has been struggling withsales, so IAD see a sixty percent, easy drop in its average revenues in thenext two years. So, based on that, the current prize of Harley Devidsen comesto around sixteen bucks. It is currently traded around eighteen plus,so it looks expensive at the current price. Next is there Canada. Current earningsare five point: Four three DLA per share historic low of p historicaverage of Pece six lowest three future runnings. I don't see in any conditionAir Canada maintaining its current earnings. It is going to see a massivedrop. It's I don't think it's going to...
...make any money this year next year itmay make some money, so I see a seventy percent drop in its revenue. Based onthat drop, the price should be below twelvedollar, so anything below twelvedollars. Air Canada seems to be a good man's decent pick. It is expensive atthe current price of seventeen, so I would not get into this Tok below aprize of twelve Disney five punt nine four currentearnings fer share. No way it's going to maintain that historic average piece.Twenty lowis nine. I see a forty percent easy prop in Disney's revenue.Its parts are closed. Major Line of business for Disney its parts, Disneyplas or streaming revenues may go up, but they don't make much in Disney'sKitti, so revenues from parks are going to fall through the roof. So next twoyears forty percent average drop ing revenue. Three point: Five six could beiath future earnings based on that...
...price. It should trade around seventyonedollars looks to be a good cat billow. Seventy five I'll give it someleavway, so Disney looks to be a good catch below a prize of seventy fivedollrs current price of hundred dollar is expensive, so this looks to be a good Bie Disneylooks to be a good bybelow. Seventy five IBM ten point: Five: seven currentearnings, historic averagep around fifteen low off around seven. In termsof P, it's going to have a drop in e revenue because IBM supplies lot ofanalytics and wats and services to Basan businesses.They may not be around so that may create a drop in its revenue. I see atwenty five percent drop, so IBM could have an earnings of eightdolars averagein the next two or three years. So...
...current value based on that earnings ishundred and twenty, and this looks cheap because the current prize is onezero, eight, so anything below O hondred and twenty looks to be a decentprice to look at IBM, Microsoft, earnings of five point: Seven: Four Prace of Avrage around twenty two lowof, eight future earning. I see Microsoft,to maintain its earnings. It has different lines of revenues. It is itas a Microsoft team platform that is being used a lot because people areworking from home. So current van correct value, I see based on historicpiace around hundred and twenty six, so Microsoft, bilow one thirtyar looks tobe a good pie. Currently at a prize of hundred and thrfifty, it looksexpensive, but if it goes down back below on hundred and thirty, it looksto be a good un.
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