How sector results apply to our stocks

Investment Analysis Clubs Saul’s Investing Discussions
21

In software, I’ll mention MANH (Manhattan Associates) and CRM (Salesforce). Both are solid companies; the trick is figuring out a reasonable share price.

MANH just took a hit from about $65 down to $59.50, despite beating both earnings and revenue expectations, and having a very strong record. Go figure. It may still be trading at a good markup to intrinsic value.

Salesforce has more glamour, since they are better known and in a better known area, growing revenues at a fast clip, though not making much money yet.

Both stocks are mentioned as recommended by TMF in articles.

22

The history of AMBA’s price points to the advantage of knowing intrinsic value. Fred Martin cites Ben Graham’s rule of thumb to calculate maximum acceptable P/E - take the percentage earnings growth rate, multiply it by 2, and add that to 8.5.

So if the annual growth rate is 10%, P/E should be 28.5 or less in order to buy. In a no-growth situation, go with a P/E of 8.5 or less.

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