what does this mean 9.7x FY10E EPS of Rs.50.5

[li2]

Hi,

I am new to this world of financial markets.Please explain me what does this mean, what does this mean 9.7x FY10E EPS of Rs.50.5 , this data is for a stock Webel Sl Energy.

Please explain me what does this 9.7x FY10E EPS of Rs.50.5

With Regards
li2

 

[rajeshn2007]

Hi,

I am new to this world of financial markets.Please explain me what does this mean, what does this mean 9.7x FY10E EPS of Rs.50.5 , this data is for a stock Webel Sl Energy.

Please explain me what does this 9.7x FY10E EPS of Rs.50.5

With Regards
li2

Hi,
webel will earn - rs.50 EPS is earnings per share for the year 2010.

9.7 times is the p/e multiple- price to earnings.

 

[AW10]

let me breakup the words in this statement

FY10E = Estimated earning of financial year 10, i..e the year ending in March 10. As this is not complet, hence the number is estimate only (in reality, plz discount the estimates cause analysts, and company are always optimistic in their projection hence estimates are generally on higher side).

EPS of 50.5 = earning per share i.e. Total earning divided by nmber of share. As this is estimated EPS, hence estimated earning number is divided # of shares.

9.7x = The multiple of EPS, at which the current stock price is trading. As fundmentalist look at future hence they have taken the Estimatated EPS in this calculation.

so at 9.7 multiple, a stock which has got EPS of 50, shd be trading in market at 9.7*50 = 485 Rs.

for Webel, current price is 330 rs. and real EPS as per prev financial stmt is 13 rs. That means, in remaining 6 months of FY10, companyis going to make make 3 times more profit per share.. so that EPS jumps from 13 to 50. (Is it really possible ????)

Probably this is only the argument given by analyst to support their buy recommendation that stock is going to reach 450.

Hope this helps.
Happy Trading

 

[sree205]

Thanxs for the explanation.

 

[sree205]

But,again on what basis,the value of stock goes up and ideally at what multiples of EPS we should buy a particular stock?

 

[AW10]

Sree, I don't make my trading decision based on such fundamental factors.
I refer to charts and take my trading decision.

Generally, for each industry, you will have a typical PE ratio .. there is no 1 single right or wrong number (during internet boom, companies with negative EPS were traded at crazy price. Maybe in recent past, you might find many real estate companies falling in that category).

So, if u find that on an average, energy companies are traded at PE multiple of 10, then u can use that as multiplier to get fair mkt price.

But again, if u use historic EPS, then u are making assumption that market conditions are going to remain same and company is going to earn in similar fashion.

And if you are using projected EPS, then again u are making assumption that people can predict future of market, economy and companies performance and decide that they will eary x EPS.

For me, both assumption are wrong so I don't go ahead with this fundamental approach for trading.

Let smart knowledgable analysts sitting at FII/brokerage house do this analysis. Finally they are going to come to market to buy stock.. and the stock price will tell me the truth. So I just watch the price and spend time there.

Happy Trading.

 

[li2]

Sree, I don't make my trading decision based on such fundamental factors.
I refer to charts and take my trading decision.

Generally, for each industry, you will have a typical PE ratio .. there is no 1 single right or wrong number (during internet boom, companies with negative EPS were traded at crazy price. Maybe in recent past, you might find many real estate companies falling in that category).

So, if u find that on an average, energy companies are traded at PE multiple of 10, then u can use that as multiplier to get fair mkt price.

But again, if u use historic EPS, then u are making assumption that market conditions are going to remain same and company is going to earn in similar fashion.

And if you are using projected EPS, then again u are making assumption that people can predict future of market, economy and companies performance and decide that they will eary x EPS.

For me, both assumption are wrong so I don't go ahead with this fundamental approach for trading.

Let smart knowledgable analysts sitting at FII/brokerage house do this analysis. Finally they are going to come to market to buy stock.. and the stock price will tell me the truth. So I just watch the price and spend time there.

Happy Trading.

Hello Sir,

How from the charts can we estimate how will a stock be doing in the coming days or months.

Please provide me some knowledge on that.

With Regards

 

[AW10]

Hello Sir,

How from the charts can we estimate how will a stock be doing in the coming days or months.

Please provide me some knowledge on that.

With Regards

Li2, you were not born fundamental analysit but you picked up the skills by reading it thru books and then practicing it.
Same goes for chart reading.. Study about Technical Analysis, Price action, how to listen thru the charts , then message market is passing to us.
So you need to get the knowledge first.. Then practice it to gain experience and then
while practicing, u will start learning the intricacies and various tricks i.e. Skills.

So to be master in anything in this world, in my view, we need Knowledge, Experience and Skills. If any one leg of this tripod is missing, then it is nothing but an unbalanced tripod and doesn't serve the purpose.

I will suggest to read "Teach a man to fish..." thread by saint on this forum.
There are many other threads dedicated to TA (but take the input with pinch of salt cause many people who have just picked up first book on TA might have also started a thread here).

All the best.
Happy Trading

 

[anoopkumar]

Dear AW10,

very nice explanation given by you. Thanx.