Company analysis

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Mining / Resource Companies:

This section is currently under construction....

>Mining company picks and more form the Silver bull report. Leonard Wall is a great guy who gets out on mine locations to let you know what’s really going on.

Company Financial Analysis / Terminology:
Understanding PE ratios
(I wrote this article for those people wishing to gain understanding of commonly used terms found in Stock broker analysis, but also to understand the nature of these numbers!)




Understanding PE ratios

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Understanding PE ratios
By Andrew Palmer
3rd May 2007

P/E - "Price earnings ratio" is a funny number for humans because it is not linear so can be misleading if not understood, and future PE can be even more confusing.

Lets start with the basics, "P" is share price and "E" is the earnings per share.
P is easy to understand, but with "E" we need to ensure it is net income of the company for a 12 month period.

An example:
Company XYZ has a share price of $1 and earnings of $0.20
so we divide 1 by 0.2 and get a PE of 5, Put another way for every 5 dollars we invested the company should net 1$ in earnings

Take the same example with a share price of $1:
Earnings are $0.05 = PE = 20
Earnings are $0.1 = PE = 10
Earnings are $1 = PE = 1
Earnings are $2 = PE = 0.5 (Very Good company!)

A picture is a thousand words so below I have plotted a chart showing PE vs. percentage earnings per share. As can be seen they are related but not linear and as can be seen PE's in the low range like 1-4 are a very rough measure unless you go into a few decimal places as going from a PE of 2 to 1 is all the difference in the world:



Then when you bring future PE into the picture and try to work out a future share price one must consider the fair value of this type of share. In the general share market a fair value PE of 14 is normal (7.14% earnings per share)
So if you think the future PE of a company is good and the future PE you worked out is 3, and you put on a fair value PE of 14 then by definition the company will never actually have a PE of 3 but the share price will increase to a point where the PE is 14 and thus you have made your money from capital gain.

So again I have plotted this relationship using a fair value PE of 8 in this example, versus various possible future PE's:


Hypothetical example:
If we are assessing different silver mining companies in one area, and in this area silver companies normally traded at PE's of about 8, we may expect that the company being assessed should also trade for a PE of about 8. If we worked out or found data showing an expected future PE of 4 in 1 year then we would expect the share price to double within the next year. We can compare this to other companies and also to physical silver. If we thought silver would double to bring about the future PE of 4 then maybe we would just buy silver as the outcome would be the same. If the future PE was less than 4 then buying the stock may be the better option.

Now to take the next step I have potted below various fair value PE's against future PE's and % earnings per share. To read this as an example: A company we are looking at normally trades at a PE of 12 and we worked out a future PE of 1 then we might expect a share price increase of 1100% all going well, Nice!




So to calculate the future share price the inputs required are future PE and fair value PE.

So expected share price increase/decrease is:

Fair value PE
---------------- .. = Multiple of SP increase/ decrease
Future PE


For example:

Fair value of 8
--------------- .. = 2x SP gain or 100%
Future Value of 4


We can simply compare this to our expectations, or to another type of investment as a comparison.

Of course coming up with the future PE in the first place is an art in itself, but just understanding what it means is important as it is often referred to in stock assessment reports.

Country analysis

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New Zealand:
For New Zeeland I have created a range of graphs based on the officially available data from the Reserve Bank of New Zealand & Statistics NZ. I produced these as I could not find information in these combinations available elsewhere.

-GDP as a % of M3 (1960-2012)
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Current account as % of GDP (1966-2012)
-Cumulative total NZ bal of payments 1965-2012
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NZ M3 vs.Total housing stock value
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M3 vs. Population growth
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Balance of trade - goods and services
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NZ total credit card debt
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NZ total available credit (credit cards)

Global by country comparison data:
Below are some very useful sites I have come across that are easy to use with user selected graphed data:
Index mundi
Nation Master


USA:
(No longer updating this data)
As the US no longer reports M3 (A subject in itself) it needs to be calculated independently, I lookup John Williams' shadowstats.com A great site to find out what’s really happing, also importantly here is found the real CPI, which is used to produce many other numbers like GDP, So if the CPI is underreported then of course this has important implications including making the economy look better than it really is. (The USA is not alone here, most "Western counties" pull this trick, its a not on my shift mentality - (Recession).
Also here are some of my own charts made using official US stats:
1959-2006 FED funds rate vs. M3 yearly % change
1959-2006 1year T bill vs. % yearly change in M3
1959-2006 M3 vs. Compounded 1959 M3

 

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