“ Someone did try to explain to me the over valuation of the equity markets using the share buyback excuse. I didn't think it was possible if companies were not making money to engineering value by contracting shares on issue! US authorities can manipulate the capital markets BUT it can't manufacture economic numbers including company earnings.”
AJ. It is hard to get your head around, yet is simplistic in its operation. All the best stings are. The basic valuation of sharemarkets is PE. $1 mill earnings / 2 mill shares. .50 per share earnings. Market decides on Cap. $1 mill earnings / 1,700,000 shares. .59 per share earnings. Market decides on Cap
no extra income yet EPS has risen 9%.
we have a reasonable basis for 1). Share price increase 2) bonus payments to Executives
the thing that very few will notice is gross income has not changed. If earnings are not growing, questions must be asked. No-one is asking the questions.
i read a very interesting piece some time ago that compared Share price growth against Gross Company Income. It blew me away.
but, even on this forum, very few are interested in doing this comparison. And why would you? Share prices are rising every year, every month, every week, most days.
The article I read highlighted whole sectors of market where Gross Company Income was dropping yet EPS was rising. Increased share prices, Even where EPS rises are driving increased P/E.
