Now I have to try and remember what I said when it was PERFECT and funny the first time ... Because it's important that people aren't detrimentally effected by zwu's numerous misguided ideas.
Now I have to be all serious and sht.
zwu,
BuyandHold and Mvanle,
Your valuations methods are not much different from the common EPS*(PE_Ratio) approach.
There is a huge fundamental difference.
By definition
ROE (Return on Equity) x EQPS (Equity per share) = Return per Share = EPS (Earnings per Share)
That is absolute rubbish.
I can't stress that enough because,
ROE and EPS are two ->different<- entities
EQPS and EPS are two ->different<- entities
EPS is NOT a measure of return, nor a measure of the rate of anything
Equating ROE and EQPS to EPS is utterly wrong.
You have failed to understand the crucial difference between Equity and Earnings.
so your Valuation = (ROE/RRR)*EQPS = EPS x (1/RRR)
That is fundamentally absurd and mathematically pointless.
How can (ROE/RRR) = (1/RRR) when the "1" is a constant ?! The only time that can balance is when ROE is also equal to 1, which is pointless. And EQPS and EPS are two different things.
The simplified version of your equation is
ROE x EQPS EPS ---------- = --- RRR RRR
After cancelling the common denominators it yields
ROE x EQPS = EPS
which is nonsense due to reasons above regarding your definition.
The only difference is that you used the factor (1/RRR), which is fixed to 13.3 or 10, instead of the factor of PE_Ratio, which is a variable for different stocks/sectors.
No, the major difference is that you have confused the desired rate of return (that which you call "the (1/RRR) factor") with the P/e ratio :)
ROE, EQPS and EPS are intrinsic business measures. They are ->deterministic<- in nature because they're generated by the business itself.
The P/e ratio on the other hand, is ->arbitrarily<- market dependent. It is based on what people feel like paying for a stock at any given time. You said it yourself above -- "... the factor of PE_Ratio, which is a variable for different stocks/sectors".
So if you put P/e into a valuation formula how can you expect to get a number that is consistent with the underlying business ?? The only time such a valuation would yield a fair value is when the stock actually *IS* trading at its fair value :)
More importantly, all these valuations depend on what EPS or ROE vulues you use.
Wrong.
See above regarding ROE, EQPS and EPS intrinsic business measures.
Also, a valuation depends on your desired rate of return (RRR), which should include the risk free rate + premium (which you confused for P/e).
The true value should be determined by future EPS or ROE rather than those in the past.
Correct.
As GTP's EPS in FY2008 and FY2009 would likely be negative, thus its share value would only be minimal (if not negative according to those formulae).
More accurately - as a business' value decreases, it's share price will decrease in the long term.
Share prices are never negative.
GTP Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
