Brittlerock,
Go to post 5584 for the entire FAQ/Knowledgebase.
Here is the section on Graphing:
## Graphing
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* Here are some ideas for evaluating a new company.
1. Go to the company website and find out what they do. To get there, google, for example, “Zillow Investor Relations” and you’ll get the Zillow investor relations website.
2. Read the text part, at least, of their last quarterly report. “Analyzing the financials” sounds intimidating, and probably isn’t necessary. They usually tell you in words what is going on.
3. Read the transcript of the conference call. You should be able to find it on Seeking Alpha “Zillow Q1 2014 Transcript” should get it. (Yep, I put it in on Seeking Alpha and it came right up).
4. Go back through at least two years of quarterly reports and pull off at least adjusted earnings and revenue. Make a table (pencil and paper) for each. Since you are interested in Avigilon, here’s what their revenues look like
2012 - 18 24 25 33 = 100
2013 - 32 39 51 56 = 178
2014 - 56
You see what a good visual image this gives you. You can see both sequential change and year-over-year change at a glance. And that 78% increase in revenue from 2012 to 2013.
Here’s earnings
2012 - 02 04 08 08 = 22
2013 - 08 10 22 19 = 59
2014 - 19
Incredible rate of growth.
Then do a running 12 month trailing earnings:
12 2012 22
03 2013 28
06 2013 34
09 2013 48
12 2013 59
03 2014 70
Gives you a picture of where they are going and how fast. You should graph this on a piece of log paper. (On log paper a move from 10 cents to 20 cents is the same length as a move from 50 cents to a dollar (100%).
To compare, here’s the earnings for BOFI. Regular good growth, but of course not as fast.
2012 - 58 64 67 70 = 259
2013 - 74 78 85 91 = 326
2014 - 100
12 2012 259
03 2013 275
06 2013 289
09 2013 305
12 2013 326
03 2014 352
Now Avigilon will sell at a higher PE than BOFI so it balances out. There’s a limit how high you should pay for rapid growth though. [Post 2003]
* If you have the time, do a weekly graph on your stock, on old fashioned large graph paper. It helps you keep things in perspective. A drop from $51 to $49 doesn’t look so bad if you look back and see that it’s been between $52 and $48 for the past six weeks, or if you see that your stock rose from $40 to $51 in the previous two weeks and the “drop” to $49 is meaningless. (The problem with graphs that your computer makes is that a move from $10.00 to $10.05 will fill the whole space if that’s the whole move for the day or week. There’s no fixed scale.) Mark where you made purchases. [Post 5]
* 1 – I graph quarterly adjusted TTM earnings on the left side of the log paper and monthly stock price ranges on the right.
2 – The basic sheet goes from 10 cents earnings on the bottom left to $1.00 on the top left, and from $2 stock price on the bottom right to $20 stock price on the top right. If the price and earnings are at the same level it corresponds with a 20 times PE ratio. That’s true no matter where you are on the page. (35 cents is exactly across from $7, and 90 cents is across from $18, etc). It reflects a PE of 20 at every point on the vertical axis.
3 – What happens when the earnings are over $1.00 and the price is over $20? BOFI is a good example with TTM earnings of $3.52 and a price of $74. Well, instead of starting my graph at 10 cents trailing earnings and running it to $1.00, I start at $1.00 and run it to $10. Stock prices then start at $20 and run to $200. I have 11 quarters of trailing earnings points on my graph of BOFI (I start before the point where I buy to give myself a picture when I first evaluate the company). It goes up at a very consistent 45-degree angle (maybe angling up even slightly more the last two quarters). TTM earnings of $3.52 is, of course, just above the $70 price line, and my July stock price line runs from $70 to $76 with a close at $73, so it’s evident that it’s very fairly priced.
Note also that the TTM earnings refer to March, as June earnings aren’t out yet. Thus the stock price is four months ahead of the TTM earnings. When the June earnings come out, the next point on the graph will be at about $3.75, which will be opposite $75.
4 – If the graph starts lower and then goes up to a higher page, I cut off the white border of the graph paper and scotch tape the two pieces together so they run together seamlessly, and just fold them in half for storage.
5 – Zillow, by comparison, has its TTM earnings half way up the bottom page at 53 cents (opposite a 20 times earnings stock price of about $10.60), then a huge amount of empty space and the actual stock price up near the top of the top page at $143 or so. Gives you a picture of a stock trading entirely on future promise.
6 – UBNT is on the top page with TTM earnings of $1.77, and a stock price of $39. As $1.77 is across from a point between $35 and $36 and the actual price is $39 (with the July line running from $39 to $45), you can see it’s priced rationally.
And, like BOFI, UBNT also is based on March earnings, four months behind. When June earnings come out we can expect TTM earnings about $1.97, which will be just under the $40 price line. The four previous earning points are $1.77, $1.51, $1.23, $0.92, and the line is almost straight up, as opposed to BOFI’s more sedate, but still impressive, 45-degrees.
7 – I also find some blank place on the graph page for my tables of earnings, revenues and TTM earnings as described in posts 2003 and 2011. [Post 2893]
* To find the paper, go to http://www.printablepaper.net/preview/70_Divisions_5th_10th_……
You’ll get a PDF that you can print out. That’s the one I use. Remember that one page goes from earnings of 10 cents to a $1.00 and corresponding stock prices of $2 to $20, so as prices move up you may have to scotch tape a second page above, running from earnings of $1.00 to $10.00 and prices from $20 to $200. With a stock like BOFI it would all go on the $20 to $200 page and you wouldn’t need the lower page. [Post 2112]
Brian