Completely agree. A PE of 16, for ARB, would be very tasty - if...

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MarsC

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21/12/18

15:16

Post #: 36936833
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Originally posted by andy777 ↑

Originally posted by MarsC
"... I can't see the theoretical discount rate applied to these businesses changing much in the future."

Well what do you consider a reasonable discount rate to be? Not so long ago, when some businesses were at a PE of 30, implying an earnings yield of a little over 3%, high grade corporate bonds were yielding over 4%.

Something like an ARB was yielding a dividend of about 1.5%. So where was the margin to low risk alternatives? We can say ARB was giving you 1.5% + the growth rate, sure. But apply any reasonable growth rate you care to, and see how far you have to travel into the future before you get a return that compares well with the low risk alternative (and "comapares well" does not mean matches the low risk alternative).

Try it on a spreadsheet and see how much of a time traveller you have to be. Now if that isn't speculation, what is?
Hi Mars, by theoretical discount rate I was referring to what I was prepared to pay rather than the market. To me a 5% FCF yield in a company that can produce compound earnings growth of 10% seems pretty decent when I can only get 1.9% p.a on cash or pay 4.5% p.a. on borrowings. ARB is a different risk/reward proposition at $15.00 than $23.50. A PE of 20 seems reasonable, I agree that a PE of 30 doesn't and I wouldn't buy at those levels. If the market falls another 20% and a basket of stocks like ARB could be purchased on a PE of 16 or so you would have a good chance of making decent money - I don't need a spreadsheet to tell me that.

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Completely agree. A PE of 16, for ARB, would be very tasty - if it ever gets there.

ARB Price at posting: $15.03 Sentiment: Hold Disclosure: Held
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Last $42.72		Change -0.430(1.00%)		Mkt cap ! $3.517B

Open	High	Low	Value	Volume
$44.24	$44.24	$41.75	$10.67M	250.5K

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Price($)	Vol.	No.
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No.	Vol.	Price($)
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1	300	42.000
1	239	41.750
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45.000	200	1
45.130	110	1
45.350	500	1
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46.650	59	1

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Completely agree. A PE of 16, for ARB, would be very tasty - if...

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Completely agree. A PE of 16, for ARB, would be very tasty - if...

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