Forum Archive Index - September 2000

[Brian Gale <brigale@i4free.co.nz>]

Hi Ben
         As part of your corollary you mention the P/E ratio and we did 
have some discussion on this subject on 28 July referring to its usefulness 
as a yardstick. John Wedde made an interesting posting on the subject which 
I append.  As you say the "old school" methods of assessing a Company very 
often fail but when they do it is often difficult to fully assess the 
reason why.  Nevertheless as John  points out the highs and lows of a P/E 
range can, in broad terms, indicate Companies wiho have  potential for 
downside/upside.

BCH is still rated a buy by McEwen and I wonder how many brokers still have 
it on their buy lists ? It would be fascinating to know who has bought into 
the Company during the last month or so. I wonder if any Chatters have and 
if so why - what are the expectations. There is one angle that could have 
some bearing on popularity and that is the dividend - their policy is to 
pay out at least 75% of Profit after Tax.
We have seen what happened to TEL after their dividend cut !

Regards
Brian

Posting by John Wedde on P/E Ratios 28/07/2000

I hold shares in both categories [high p/e and low p/e]. Those with a low
p/e I usually don't give more than a glance when surfing through my
portfolio. They don't make me too nervous. A low p/e means the cost of my
shares will be earnt back very quickly. There does not appear,
notwithstanding extraordinary events, to be too much downside. On the other
hand high p/e's mean maximum hype and maximum expectations. I've learnt the
hard way in life that too many of these are dangerous!!. There is a lot of
downside when expectations are not lived up to. On the other hand these
expectations can drive a share price to giddy heights very quickly. When
this happens it's good to be aboard for the ride, just make sure you get off
the train before it crashes!! Shares with high p/e's in my portfolio I watch
like a hawk every day. They make me nervous.
I guess us fundamentalists are all looking for low p/e's [and low
price/nta's as well - this is a favourite ratio of mine] combined with
realistic expectations for rapid earnings growth --- kind of having your
cake and eating it too!



At 17:30 14-09-00 +1200, you wrote:
>Peter,
>
>I'd venture to say that you went wrong by using the past as a benchmark for
>valuing Baycorp.  This is a simplistic statement on my part - there are
>other reasons for Baycorp's rise, but I do believe that many people are not
>making as much money as they could be in today's market by using
>"old-school" valuation methods. etc.etc


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