Irrational valuations

Discussion in 'Stocks' started by NoDoji, Jan 4, 2010.

  1. NoDoji


    I present 2010 projected earnings and current share prices for several stocks which are largely institutionally owned.

    STEC 2010 projected earnings of 1.91 per share, currently trading around 18.00.

    AMZN 2010 projected earnings of 2.57 per share, currently trading around 134.00.

    IBM 2010 projected earnings of 10.90 per share, currently trading around 132.00.

    Now let's look at some food-related stocks:

    GMCR 2010 projected earnings of 1.90 per share, currently trading around 82.00.

    AIPC 2010 projected earnings of 3.12 per share, currently trading around 35.00.

    And retail:

    ANF 2010 projected earnings of 1.02, currently trading around 35.00.

    ROST 2010 projected earnings of 3.36 per share, currently trading around 43.00.

    The valuation comparison between AMZN and IBM appears just plain absurd.

    That GMCR and their single-cup coffee fad propping up that stock price, while a fine pasta company AIPC is trading at a pittance of its value just makes me crazy.

    What drives such large discrepancies in valuation among these stocks?
  2. Quality considerations.

    You are citing eps considerations. Using a percentile ranking of EPS for these stocks mentioned will be the same.

    But then look at their RS which is how your determined to make money RS is a price measure for quality.

    High EPS and RS is the insurance a trader turns to. High beta is also assured when the price range is narrowed ( See talon for an opposite viewpoint).

    The "sweet spot" for position trading stocks to make money is a qualtiy issue that guarantees a 3 beta plus price setting at little or no risk.

    Long term ownership coupled to a quality stock assures a high beta. The float to liquidity ratio relative to the beta is where its at. (and the actual values have to be considered as well).

    Gradually a person turns to volume as the guarantee of price volatility for high velocity position trading. This takes backing away from annualized fundamental data and a price point.

    Low volatility is the bane of fund trading. The virtue of your trading is the short term hold (emphasizing the exponent of the CIF) combined with the volatilty of liquidity and a small float tied up with significant long term holdings of institutions and insiders.

    Your Universe may only have stocks with good rank (%/day of profit); short holds 2, 3, or 4, days and repeatable and reliable cycle rep rate (5 times in 6 months of nominal 20% moves). See spyder's advice to xburbx in the volatility thread.
  3. Jesus


    1. I haven't looked at IBM but your right about amazon, their valuation is totally absurd. Their a great company but to live up to this valuation they would have to become one of the best in the world

    2. Why complain, buy AIPC if you think its cheap.

    3. There has always been discrepancies in the stock market. Stocks will fluctuate. GMCR is much more exciting than AIPC. GMCR is a "hot growth" stock that people get excited about.
  4. neke


    Interesting. But you know what? The market is always right? I used to think the market was insane around 2003/2004 when the homebuilder HOV was trading at about $40 (adjusted), its forward PE ratio was less than 8, and its year-over-year earnings growth was > 40%. That was until the last few years when I saw how fast the earnings disappeared following the busting of the housing bubble, and of course the stock went as low as $1!!
  5. mililani


    You should have went long GMCR. It's up around 30% since I said to get long that stock.