Forum Archive Index - September 1999

["Talacek, Philip " <pjt57@elec.canterbury.ac.nz>]

I feel the current PE ratio is only relevant if it can be used as a reliable
indicator to future earnings.  Building has had a shocking year and if I
remember correctly their latest profit result was about $26m (??).  If one
was to look to previous years their net profits were $134m, $146m, $121m,
and $117m in 98', 97', 96', and 95'.  If one were to use those earnings as
am indication of their future potential profits one would find a PE ratio in
the teens.  Being a share strongly dependent on the domestic economy it
makes no sense to base expectations of future earnings on a year which was
dominated by a recession and for periods of time high interest rates which
reducing the level of building activity.  Should Z show any strong economic
growth in the coming years I would expect FLB to perform very strongly
though I suspect profit from the construction industry probably lag the
general economy by at least six months.  I rate FLB a buy at less than
$2.70.

Philip Talacek

> -----Original Message-----
> From: Mark Hubbard [SMTP:mhubbard@es.co.nz]
> Sent: Wednesday, 22 September 1999 18:02
> To:   sharechat@sharechat.co.nz
> Subject:      Re: [sharechat] Fletcher Building
> 
> To accept a particular PE ratio just because other companies in that
> industry have similar ratios, seem non-sensical to myself (this, I
> suspect,
> is part of the reason the US stock market has become so overvalued. Some
> sort of herd instinct). A share's valuation has to be viewed, in my
> opinion,
> individually and on its own merits. As Brent has said, having to wait over
> 76 years for FCB to pay the purchase price of the share back out of its
> earnings is crazy stuff, unless you believe that is going to have a very
> 'dramatic' increase in earnings - which I do not believe is the case.
> 
> PE is only one aspect that I look at when valuing a share (for myself),
> but
> it is important, and high PE's make me think doubly hard about buying a
> share.
> 
> You might have guessed I have no US shares (indeed, I have just sold
> completely out of every US managed fund that I have been in).
> 
> 
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