Metroliner telephone article 4122
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Let me introduce you to three key figures in valuing companies.
The first is Price-Earnings, or P-E. This is how many years the company must make earnings to pay for it's shares at the current rate. A normal value is around 15, somewhat lower when interest rates are high, and somewhat higher when they are low.
If the earnings are growing then a company can justify a higher P-E.
The next is price-sales. This is how many times the gross turnaround goes into the value. A normal value is between 1 and 2. Same logic as for P-E, but wider range is allowed.
The last is P-B, or price over book value. Should be well above 1 but is not always. If it is below 1 it means the owners would rather see the company liquidated and buttets sold.
These are the figures all professional investors look as their primary guidance. It is either profits, turnover (which will be the source of future profits) or book value (which is previous profit or investment). It is called capitalism.
The guys who serviced IBM Selectric typewriters used to wear three piece *+-suits. My first job out of college was at a medical center. The IBM *+-guy would borrow a lab coat so he could...
They will look on oodles of other figures as well, but they will always have a secondary role. If book value is low, but dividends are high and profits good they know the Debt Management is winding down the comopany, so the investors don't have to. That may inspire confidence, and the share price may stay up for a while.
For the people doing the job, that will be their saving grace; because when the company is wound down someone else will come and take over, and will need people to do the work.
Don't have sentimentality over companies. They are tools, and may be good places to be for a while. But they, too, whither and disappear.
Someone commented about the market having "announcementfobia", in that share prices drop before all announcements. This is normally a bearish indicator; where investors are pootish. Or they may have been burnt by disclosure rules and have pre-programmed sales at certain dates.
Anyhow, it generates a lot of instability, especially when other instruments make multipliers on those shares. e.g. options and futures.
-- mrr