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StockCentral :: Community
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Join in on the discussion with other like-minded investors in our community forums. Learn about the fundamental investing methodology and participate in educational workshops in the Investing forums, stay up-to-date on StockCentral news and make suggestions to the StockCentral team in Central Square, and discuss your favorite stock or recent market news in our A-Z ticker-based forums.
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/15/2007 11:04 AM |
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Ralph Seger's third pick in our "25 Top Stock Picks for 2007 and Beyond!" contest is Quality Systems.
Ralph's SSG is attached to this message.
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 Attachment: QSII.SSG
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Joe |
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Lawrence Moreno
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| 01/24/2007 10:02 PM |
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I know there is a thread about extraordinary companies in the classroom that may touch on this, but I have a question about Ralph's QSII SSG. I did one of my own and then I opened Ralph's. At first glance the first page looked the same and the 2nd page was close. So I couldn't figure out why I was in the Hold range and Ralph was in the Buy. Then I noticed his high price was higher than mine so I looked back at the calculation data. Ralph has a high PE of 31 and EPS of 2.12 which I also had. But then his high price was a user set price way above that calculation. When I first heard of the SSG I was thrilled as I am a math minded guy and thought all I need to do is put in the numbers, look for trends, take out what looks out of kilter and get some advice. Then of course I realized that the judgement of picking PE and EPS were key and have struggled at times as to what those judgements should be. Now I see an "old pro" and he puts in the judgement numbers but makes a new judgement on his own outside of those judgements to change the high price. So I guess my questions are
a) is that a usual thing to do?
b) where did this high price judgement come from? (it may have to do with the other discussion where maybe people think the PE should be higher, although Ralph already took an outlier to go from 35.7 to 31)
c) when should someone make judgements on PE and EPS and then go outside of that to set a price (i'll assume the answer to this one is that I personally shouldn't do this until I have a lot more experience). |
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Dan Hess
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| 01/25/2007 8:16 AM |
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Lawrence
From the QSII file I see Ralph prepared the 5 year EPS is 2.80 not 2.14. Thus the high price is 31 * 2.80 or 86.8. Thus the SSG program is calculating as normal.
The judgment Ralph supplied was that the EPS would grow at a 22% rate and the high PE Ratio would be 31. This is where differences from individual to individual may occur. For example I have an EPS growth rate of 16%, high EPS of 2.16 and a high PE Ratio of 30 and thus a high price of 64.80.
Dan Hess
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/25/2007 10:58 AM |
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Ralph's reply to Lawrence Moreno's questions:
(a) Keep in mind that the price of a stock is primarily affected by growth
of EPS and an expansion of the PE ratio. Also keep in mind that the SSG is
all about judgment. So why did I decide to use a high PE ratio greater than
the adjusted average high PE ratio of the last five years? If you look at
the back of my SSG in section 3 D you will note that the high PE ratio has
been steadily rising from 21.4 in 2001 to 54.1 in 2005. To me that
indicates investors seem to be willing to award a premium PE ratio to
Quality Systems for the future than has been experienced in the past.
(b) Where did this high price come from? It came from judgment based on
experience. Further, I am reluctant to suggest a high PE ratio greater than
say 30. In selecting 31 I violated one of my "rules", but only by a little
bit. I realize this is not a very satisfactory answer, but it is the best I
can offer looking inside my head..
(c) The person who asks the question as to whether they should be making
major changes in future PE ratios only when they have a lot more experience,
is correct. Before one makes major adjustments in estimating future PE
ratios one should have considerable experience. I have been using the SSG
since 1952.
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Joe |
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Lawrence Moreno
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| 01/25/2007 12:19 PM |
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| I am not home to double-check this but it appears that I may have had a software snafu last night. As I noted I ran an SSG using Classic Plus for QSII. Then I opened Ralph's (which aslo opens in Classic Plus) and the High EPS times the High PE did not match the High Price. It appears from the previous response that this was not correct and I did not see the high EPS correctly. So my point was correct, if you set a high PE and high EPS you shouldn't, to the best of my knowledge, then change the high price calculated from those numbers. Thank you both for your time in answering the questions and poitning out my error. |
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Lawrence Moreno
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| 01/25/2007 8:57 PM |
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| Now that I'm home it appears that I have a software bug with Classic Plus. I click on Ralph's SSG from this site. When prompted I save it in my SSG Datafiles Directory under Classic Plus as QSIIRS (the one I ran is already saved as QSII). When I open it I see the SSG that is attached. Page one has a 20% EPS Growth which computes toa high EPS of $2.12, but the high price is set higher than the EPS * PE. Any technical assistance would be appreciated. I was trying to see if there was anything I set that caps the EPS Growth at 20%, but I couldn't find anything. So in the end I have Ralph's high price and ranges, but the rest of the data doesn't seem to match (as someone earlier had noted his high EPS was $2.80 or so). |
Attachment: QSIIRS.SSG
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