The back of the TSSW considers only the value issues—is the stock selling for a fair price, and what a reasonable price would be.
Again, at the top of the page, you'll find the data required for the calculations on the page below.
The P/E Ratio Analysis
The first section beneath the data deals with the important price-earnings ratios. There are two things to look at here. The first are the historical high and low multiples, which lead to the Historical Value Ratio (HVR), the basis for the "Mood Indicator." Where we would expect the user to eliminate data that's not relevant, outliers that are definitely out of line with the rest of the data, Take Stock calculates the median value for the high and low PEs to avoid distortion from such data. If the advanced user chooses to eliminate any outliers, the use of the median will be overridden, and the averages of the remaining values will be used to calculate the HVR.
The second is the estimate of future high and low PEs which form the basis for determining a fair price for the stock. The technamental chart shows the high, average, and low PEs (black dots), average high, signature PE, and average low PEs (teal-colored lines) and the forecast high and low PEs (red, dotted lines).
Reward
The next section uses the forecast high and average PEs, combined with the estimates of future earnings from the front of the form, to conservatively estimate the Potential high and average prices five years in the future. Using these estimates and the current price, Take Stock then is able to calculate a hypothetical Total Return if the price should reach the potential high, and the Projected Average Return, if it should reach the potential average price. You'll find these values on the Total Return at the Buy Price screen.
Risk
The next section deals with the potential risk of loss. Here the future low PE is used, in conjunction with the last reported earnings to come up with a conservative estimate of the lowest price one might expect the stock to reach, worst case. The product of those earnings and the future low PE results in the potential low price, unless the "Yield-supported low price" should be higher.
The yield-supported low price is the price at which the yield on the stock you are studying would be within 1 percent of that returned by a five-year government bond. This is a point at which income investors would begin to purchase the stock as an income instrument with the added benefit of having the stock appreciate at some time in the future. The potential low price would be the higher of the two.
This low price is used to calculate the Risk Index—the percentage of the range between the low and high price that represents risk. This calculation simply compares the difference between the current price and the low price with the difference between the high and low prices and calculates what percentage of that range you could lose. You don't want a risk index above 25 percent.
Price Analysis
Here is where the buy price is calculated. Comparing the highest price needed to meet the return requirement and that which meets the risk requirement and selecting the lower of the two ensures that the buy price will meet both requirements.