Browsing All Posts filed under »Valuation Metrics«

Misunderstanding Enterprise Value: The Economist & Financial Times Edition

June 6, 2011


From the Lex column (“Renault: carmaker is running on empty“) in the Financial Times on 31st May 2011: Subtract the market value of Renault’s stakes in Nissan, Avtovaz of Russia, Daimler and Volvo, and the stub value of the French carmaker is negative: minus €15 a share. From the Economist (“Renault’s woes“) on 4th June […]

Why The Equity Market Still Looks Good Value

December 20, 2010


An regularly quoted measure in order to estimate whether or not the equity market represents good value is the price/earnings ratio (ie. the price of the overall stock market relative to the current year’s forecast earnings).  This makes sense given that shareholders are paying for the stream of earnings that the companies in the index […]

The Perils of Growth Investing (Part 1)

December 15, 2010


This is the first in what I expect could eventually be a long series of examples of how investing in “growth” business at high valuations can result in a serious loss of capital.  The chart below shows the share price of Betfair, a company which operates a peer-to-peer online gambling exchange.  The company sold off […]

The Failings of the P/E Ratio

August 31, 2010


Arguably the simplest of all the equity valuation methodologies, the P/E ratio is also a metric with a large number of shortcomings. In the basic sense, the P/E ratio is attractive to investors because it is easy to apply (no detailed cash flow forecasts or estimates of the cost of capital are required) and is […]