"Why, inflation could just as easily kick up again" Very...

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vic_wattle

3,507 Posts.

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30/12/22

11:10

Post #: 65479211
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Originally posted by madamswer ↑

"What happens to interest rates if inflation follows M2 down rapidly I wonder. A bull market would kick into high gear if this eventuatues later on in 2023. I am getting greedy with REH."

Imagine predicating an investment in a stock based on what "the market" might do over the next 12 months.

Why, inflation could just as easily kick up again, so who knows whether 2023 would be a bull or a bear market or even a market that meanders nowhere?

So, leaving the arcane field of trying to predict macroeconomic variables and moving to the more definitive area of valuation, the stock is trading on a FY2023 prospective P/E multiple of ~23x to 24x.

Which is a strange sort of valuation level to induce sensations of greediness.

Assuming you wanted to make, say, a 25% return on your investment in Reece (the minimum amount to warrant becoming greedy, one would have thought), do think that that desired investment return is going to come from:

1.) a 25% upwards re-rating of the P/E multiple (given the consensus forecasts are for generally flat EPS), to close to 30x?

or

2.) actual EPS that end up being 25% higher than consensus?

I happen to think that neither of those are even in the least likely to occur, so I struggle to see why anyone would be feeling even remotely greedy about buying REH today.

To me the equity feels like being merely fairly valued.

What am I missing?

.

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"Why, inflation could just as easily kick up again"

Very unlikely. Rapidly cooling inflation much more likely. Forward indicators pointing to this. Market has not priced in the fact that if the fed does not cool rates, loan growth will continue to grow as banks make hay from feds folly.

Global container freight index.

Last edited by vic_wattle: 30/12/22

REH Price at posting: $13.97 Sentiment: None Disclosure: Held
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