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As I have mentioned, stock in my former employer (PEG) is one of our largest holdings. I have owned it for 50 years or so. It’s recent financial reports were good, but it missed one estimate by one penny.
That range over the last 52 weeks was $68.29 to $96.52. Other than interest rate concerns I have no idea why. Today the price is $78.79.
Then I read this:
So, who does one believe, bet on, if you will? What do they know, we don’t? Why would the stock climb $20 or so a share, why did it drop nearly $30 in the last 52 months and the go up with no change in the company to speak of?
Is there any logic or are the markets one big casino?
This inquiring mind wants to know how this works not just for this stock, but overall.
Enlighten us Jonathan.
The analyst’s price target is plainly stated in the analyst’s report: the stock’s intrinsic value and future valuation. There is no room for confusion in such report. Intrinsic value is the present value in today’s dollar of the stock’s future earnings. Valuation is what investors are willing to pay for the future earnings.
Price target = Future earnings per share multiplied by the future P/E ratio (price-to-earning ratio).
Both numbers are predicted based on company’s quarterly earning report, future guidance, and investors’ sentiment. Such analysis is called fundamental analysis. Each analyst uses a proprietary methodology for intrinsic value and P/E ratio estimate. Stock prices have not followed the fundamental analyses over past decades due to various market forces (index passive investments, stock momentum, factor rotation, future trading, option market, etc. ). It was rumored that most active fund managers prohibit using the F word (F=fundamental analysis) in their team.
“It’s tough to make predictions, especially about the future.” Yogi Berra
So it is one big gamble based on the thinking of the wizard behind the curtain? 😎
It’s the greatest game in town 🙂
In case your inquiring mind wants to know who pulled the curtain, look up Eugene Fama. His Ph.D. thesis in 1964 on asset pricing introduced the Efficient Market Hypothesis (EMH) which launched the modern finance era with index fund investing and earned him (jointly with Robert Shiller and Lars Peter Hansen) the Nobel Prize in 2013.
Have you tracked the projections over the last 20 years to get an idea of how valuable those projections are?
If you have no plans to sell the stock, why do you care? I still own 100-odd shares of my former employer’s stock, but since I don’t want to figure out the capital gains from selling it, I pay no attention to its price.
And as Dan Smith has already pointed out, if you invest in an index mutual fund/ETF you also have no reason to spend valuable time worrying about the price of individual stocks.
It was a matter of curiosity as to the workings of the market.
If a company is making money, and steadily increasing its revenue and assets, you will make money in the long run. Don’t worry about the quarterly fluctuations.
I have PEG myself, and I only paid $20 a share. Since I’m getting a 12% dividend on my original cost, I don’t worry too much about the current share price.
I’m in a similar boat, but much of mine was around $40-45 a share and most was just part of compensation.
The essence of my question was not about PEG as such, but the variations in analyst opinion and the fluctuations in prices.
This is why I’m a mutual fund investor.
Exactly, as John Bogle was famous for saying, “Don’t try to find the needle in the haystack, just buy the entire haystack,” and in my view be happy with the historical return of 6-7% above inflation. And then as Warren Buffet says be happy with, “the eight wonder of the world, compounding interest.”