You have graciously accepted and answered questions in the past, so I submit others. I am using the semi log 70, 10 by 1 paper.
Referring back to Posts 2003, 2011, & 2022, I am working on graphing a couple of companies according to your methodology. Due to my inexperience (hopefully not foolishness), I am not quite sure how to make the numbers jive and jib on the semi-log paper graph.
What numbers are you graphing, just TTM earnings and share price? It seems some of the hyper-growth companies like you are dealing with are off the bottom or top of the graph within a couple years time. True? (starting off the bottom and progressing off the top in a few years is a good thing though and just what we want) Share price monthly and TTM earnings quarterly, correct? Or, are you using quarterly non-gapp diluted eps on the graph with monthly share price? Same graph? Separate graphs?
UBNT reported their 3rd qtr 2014 earnings for 3/31/14: the TTM was $1.77, (quarterly eps $0.50) the share price $45.45, and therefore the PE 25.68. How does this get set up on the graph? What should go on the vertical midpoint of the graph? One of your posts spoke of placing share price and earnings in a manner to reflect a PE of 20 at that point.
Hi KL, Great questions!
1 – I graph quarterly adjusted TTM earnings on the left side 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. As you see, 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).
One of your posts spoke of placing share price and earnings in a manner to reflect a PE of 20 at that point.
As you see, it reflects a PE of 20 at every point on the vertical axis.
3 – As you correctly pointed out, 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, which you asked about, is on the top page with TTM earnings of $1.77 as you said, 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.
Hope this helps
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