In the Stryker forum, Douglas Gerlach wrote:

“One of the checks that TK6 does in calculating default judgment is to make sure that the forecast low price is 75% - 80% of the current price.”

If you can construct such a check for TK6’s automatic judgment, I suggest that you also build in a similar check for the on-line version of Take Stock.

What do you think?

Armin

We can certainly take a look. Do you have any stocks where Take Stock is currently showing a projected low price higher than the current price?

OTOH, I believe that Ellis thinks that it's okay in some circumstances if this condition exists....

Doug

<< We can certainly take a look. Do you have any stocks where Take Stock is currently showing a projected low price higher than the current price? >>

Sure…that’s easy, just about any stock that has fallen drastically in price has an unreliable Forecast Low Price from Take Stock.  Here are 25 I found yesterday, December 5^th, plus a few other unusual situations:

- I think the Projected Low Price in these situations discredits the Take Stock analysis and, without more, makes it untrustworthy.  I urge that you revise the Low Price feature of Take Stock online and make it the same as the automatic judgment of TK6.

- The limitation I’m advocating seems conceptually similar to Take Stock’s cap on the Yield Supported Low Price.  Both seek to constrain irrationality and impose a measure of reasonableness.

- Personally, I think 60-70% of the 52 week low is a better limit than 70-80% of the current price.  However, if and when are much more important issues than how much.

- Any limit, I think, should be flagged so the user can see plainly what’s happening.

Armin

Hey Armin,

This discussion ties into an earlier thread on PE levels, and how to predict future levels.  I have always done studies where I made my Estimated low Price below the severe yearly low price. I have also adjusted my low PE as part of the product.

If you look at FDS, the recent market severe low Price is $34.94. 85% of that price is $29.76. With earnings of $2.48 for the TTM, the low PE is 12. (The all time low PE for the stock is 14.1) By using a low PE of 12, I am acknowledging that there is still some downside risk to the stock.

If you agree that 12 is a reasonable low PE for the stock (because it gives an estimated low Price that is 85% below the recent severe low Price), what would you use for the average PE? Do you feel that using the average PEG value the stock has traded at in the past worthwhile? That would relate the PE of the stock to it’s earnings growth, which seems somewhat more objective.  

For the past 5 and 8 years, the PEG for FDS has averaged 1.3.

If you agree that 1.3 seems like a reliable PEG for the stock, does it make sense to predict future PE based on that? From my SSG, I have predicted annual EPS growth of 12.3%. With an average PEG of 1.3, my future average PE will be 16. (PE/G=PEG; PE/12.3=1.3; PE=12.3 X 1.3=16) If you feel that earnings growth will be greater, the PE will rise also. (That makes sense-stocks tend to sell at a higher PE if earnings growth is high.)

I have assigned a low PE of 12 to get the Estimated low Pr that is 85% of the recent severe low. I have assigned an average PE based on the average PEG times my predicted future earnings growth from the SSG. In order for my average PE to equal 16, I will need to assign the high PE a value of 20.

I realize that are many other factors that influence a stock PE; Steve Phillips offered a very complete list in a discussion on PE values in 4-08. Establishing a low PE based on the recent severe low price, and an average PE based on average PEG levels seems more objective to me and helps avoid irrational choices.  What do you think?

Pat Landers

This is interesting.  One thing I notice is the volatity of the PEG vs the PE.  It seems that by using the PEG you may not be able to strike out "outliers"

Hey Jack,

You can remove any year that seems like an outlier: from my chart, if I remove the years 03, 06 and 07, my PEG is 1.33. Maybe that is more accurrate.

I feel that forecasting the PE based on the earnings growth of the Co. is probably more accurrate that assigning a PE based on past levels. Thanks for the feedback.

Pat Landers