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I bought CDD fairly recently as at least medium term investments.

To get a target share price I invent a price-earnings ratio (PER) and multiply the diluted EPS by it. This is crude – one must consider growth, one-off factors, debt, net realisable assets and other things, but it is a good way to create a short list.

A typical firm on the ASX that interests me is one that has a PER of about 15, and it should pay about 50% of the EPS as dividends. I would lower the PER if the firm had low stock exchange activity, slow growth, low dividends or high debt, and I would elevate it if it had few or no competitors, barriers to entry and a good historical record. Reduce the PER in a bear market, and elevate it in a bull market.

CDD’s diluted EPS is 41.34 cents, and its dividend is 27 cents. Its ratio of Total Liabilities to Tangible Assets is .76 - fairly average for similar firms. There is no strong reason to suggest that its PER should be less than 15, which would give a target price of $6.20, whereas the price closed on 5/9/2008 at $5.26. As a gambling man I would wager that this share is more likely to gain $1 than lose $1 in the next 6 months. What it might do in the next few weeks is something you should ask chartists, because I have not considered the near-future price movement probabilities.

To get a feel as to what is an apt PER one should look at various shares that are similar to CDD. I’ll just consider Lycopodium, LYL. Its diluted EPS is 32.9c and its dividend is 25c. The higher dividend to EPS is a plus. CDD has low intangible assets. Its Tangible Assets are $28.44K compared to CDD’s $52,891K. LYU’s ratio of Total Liabilities to Total Tangible Assets is 44.8% compared to CDD’s 75.8%. This is a plus for LYL. I should consider other things, but on the foregoing I would think that LYL should have a higher PER than CDD – let me suggest 17, which multiplied by the EPS would give a target SP of about $5.60, whereas it is now $4.65.

I am happy to hold CDD, and now that I have examined LYL in this exercise I must add it to my list of possible buys. I looked at MND some time ago, and regarded it as being too expensive, so I bought CDD. I also considered COF, although I cannot recall why I preferred CDD.

Your personal optimism-pessimism propensities would be different to mine, so expect to come up with different PERs for CDD and LYL, and if I were to be more diligent in considering these shares I would end up with different PERs myself.