Stock Market: Questions And Answers

@buttyelele,

Thank you so much for taking me to the classroom again. Our tertiary institutions would be more than willing to employ you as a lecturer. You r simply great and thorough!. You examples make it so clear.

However, I must tell you that as at now, I have grabbed the mathematical aspect of how to calculate EPS, PE & PAT (interestingly within such a short period on this thread ooo), but the only area remaining is how to use these 3 parameters as tools to forecast the future value of a share and how to use them to establish if a value is under-valued or over-valued.

Then, I will still like to know the full meaning of PE please

Lastly, you stated that

Do you mean to state that " a coys PE (and not EPS) should not be too low in comparison to the market price?.


PS : It is interesting to note that nairaland is now my virtual classroom,  and I'm so eager and willing to learn. Always on the look-out for my lecturers on this thread.

Also, that I can read the prospectus of coy with clear understanding and interpretation is such a soothing relief.

Thank you all.

hmmmmn,

learned a lot from this thread!!!!

@poster

Thanks for the thread.
Please does anyone in the house know if intercontinental bank has given out shares certificate for the last ipo which they did?.I bought some shares and have not receive certificte from them and i do know how to go about it because i don't bank with them.Any information about this will be greatly appreciated.
Thanks in advance to all nairalanders

Nice topic. Most people really don't understand the terms used. Anyway, lets take for example, access bank public offer of 4,721,839,130 ordinary shares of 50k each at N14.90 per share.

(i) The 4,721,839,130 Ordinary Shares represent the number of shares the company is offering to the public, i.e. the public is allowed to subscribe up to that number of units for that particular offer.

(ii) the 50k means that each of the company's share has an actual/book/nominal value of 50k each, this means that for each unit of shares bought, its actual value of 50k in the books (balance sheet) of access bank plc. now, lets get this well, this simply means that the company is supposed to sell this shares to the public at 50k, however, most companies due to their perfomance and market perception do not sell their shares at its book value, companies sell at a premium i.e a price above the actual/book/nominal value.

(iii) the 14.90k is the price to be paid to buy 1 unit of share.

hope u understand, for more info, u can reach me on olawoyina@accessbankplc.com

my reply goes to MT. first the 50k for instance is the nominal value as it is being called on the shares, while the other price is the say N17.80k is the Public offer quoted price, the price you normally see in the dailies are the current market price of those shares. the difference between the quoted public offer price and the current market price is like a profit to you as a buyer. is just like a seller bringing a goods to you offering you less of what is obtained in the market.

i will suggest you read this thread from the beginning and also go to the 'Business' section of the nairaland site and read through any thread that mentions STOCKS, SHARES, CSCS, STOCKBROKING, PUBLIC OFFER etc in the topic.

you shld be able to pick up a lot of background info from answers to people who have asked the same questions in the past

If u're a big guy with lots of dough, buying and holding stock should not be the best for u, let your money work for u, CSCS only help u to monitor your stocks, the trends and authenticity of u being the holder of the stock. if u want to enjoy returns on your stocks, get a reliable stock broker, contact him regulaly at least twice a week to let u know the downward or upward trends of the stocks u hold. there're some that move faster, within a short period makes u earns much when u sell them at that moment, before they start going down. I've been opportuned to enter into the floor of stock exchange during one of my researches then, it's such a lovely place to be, where u see big men, guys, women, e.t.c using phones to monitor stock prices from outside, ordering to sell or buy more stocks for them. note this is for big time biz. if u're just starting, maybe buy little, hold for a while and see what the future brings for u. good day guys

i love this questions and answer page. for any one who want to start investing in equity shares investment. he/she must  be focus and be active. for fidelity shares,it is good to buy because very soon, the bank will go for capital reconstruction and the current price will appreciate and soar high like that of bankphb. so if u ve money, go and buy.likewise japul oil maritime. it is also good to buy. get all this stock for your tommorrow. thanks. for futher information, call me  on 08027411928 or mail me on jide_tosin2001@yahoo.com or if u are in abeokuta,u can get in touch with me in my office at suit 373 obalipede market at kuto abeokuta ogun state. the name of my company is priestfield webberlink international coy . am jide .just call the phone line for information,if u want to be investing. thanks

No single indicator is an absolute guide to the value of a share and quite frankly, the true value of a share IS IMPOSSIBLE TO DETERMINE. What we all try to do is predict the price in the future and buy if we believe it should go up and sell if vice versa.

PE is a double edged sword. Let's consider you proposal. If EPS is 1.20 and price is 60, PE is 50. Most people would scream overvalued. What is the annual earnings growth rate is 400%? Next year the EPS will be 1.20 X 5 = 6 and the PE would have dropped to 10 (if the price held constant). Forward PE takes the growth factor into account and should be the basis of an investment decision. For the above example, current PE may be 60 but forward PE is 10. It's clearly cheap going forward.

When the PE becomes too high relative to the growth rate and similar companies, the market tends to sell and the price will adjust downwards. So, we don't like high PEs (ever!) but a high PE could indicate that the company has a lot of potential and people are willing to pay extra to watch that potential become reality.

You should consider a share undervalued when it meets your minimum investment criteria. For ME, a company is undervalued if:
1) the forward PE is less than 20. Last yr I used 10 but the market is more "expensive" now
2) the growth rate is >60%. Lots of high growth companies on the NSE. Why waste my money on a stagnant one?

These 2 rules are for very quick screening. Of course, you MUST consider the issues affecting that industry, the quality of management, competition, profit margins, primary market activities etc.

Ulimately, the market decides what value a company's share is worth. The game is forsee the info the market is mssing before it becomes obvious. That way you can make a buy/sell decsion before the market can respond.

Earnings growth the the fine art of investing. If a company makes N100M in 2006 but makes N75M in the 1st quarter of 2007, do you consider the 75M as an aberration or a sign the company will make N300+M this year? If you choose the former and the 2,3 & 4Qs go back to normal, the company will make 75+25+25+25=150, if the latter, then you have a 200+% growth rate.

If the company has 1B shares and is selling for N5ea, the current (trailing) EPS is 75M + the earnings over the last 3Qs of 2006 = 150M/1B shares  = 15K.
Current PE = N5/15k = 33

The forward EPS (if u believe the company will make N300M) is N300/1B = 30k, Forward PE becomes N5/30k = 16.7

THe difficulty is in predicting future earnings. No one can do it with a reasonable degree of success. Several companies have projected well and done poorly while others have projected poorly and released amazing results resulting in a stampede (been watching Costain?)

And don't forget as easimoni said there are other factors that affect share price movements that do not have anything to do with how well the company is doing(fundamentals). Some companies have mastered the art of manipulating share price i mean there are companies that have not declared or released any resûlts that we can look at in the last 3 years and their share prices are skyrocketing(market irrationality) but that should not be your  basis for determining which stocks to invest in. Use the figures you can lay your hands on and financial reports and that way you have  a fairly good idea how well a stock is performing. All these quantitive ratios give us an idea of how the stock is likely to behave at any given point in time(it does not mean that will be the case) so in summary there is no substitute for doing a bit of reasearch and that way you have the info you need  before you make your investment decision
Happy investing!

this is a rejoinder to our discussion on PE ratio, EPs,MPs etc. What i failed to tell u that will clear the air on PEratio before we all miss the mark is that PEratio is measured in years.

so go back to all i have said on the topic.

When u  divide mps over eps, whatever u get is the PE ratio, which is known as a future indicator of the performance of the company. It is so because it tell u the number of years it takes a company to recoup their present investment if the earnings remains constant, hence if a coy has a PEratio of 1.4, it means it will take the coy 1.4 years to recoup its present investment.

so a coy with a peratio of 2 is better than a coy with a peratio of 5.therefore a coy is doing well if its PEratio is lower compared to another coy.

Please can someone help me out here?

I do not have a stock broker and I want to buy shares from public offer, just have very little amount.  Now there is this stock broker that wants me to buy through his firm so that at long run when I must have bought large units, they can open an account with it for me.  Please I want to know if its a good deal,  I don't want to loose my little penny.

Thanks to all contributors.

web master

go to www.cashcraft.com
it is the most informative of all the sites I have visited

please how do i open a cscs account.can i do it online.please help.

Chairman, Warren Buffet knows a whole lot about PE.
A Knowledge of these theories would enable you  to take appropriate action.