P/E ratios give you an idea of how over/undervalued the shares are. Those
with a high P/E ratio like Microsoft are going to take a long time to give
you a decent earning from the dividend; however it's unlikely they will go
bust, so the shares are expensive. Those like Torex with a poor past record
are more likely to go bust and may not give any divvy at all. P/E is thus a
useful shorthand. With historic P/Es being well below the current average,
one could argue that the market as a whole is very expensive. On the other
hand there is a view that we are in for a very stable period (?delusion) and
so buyers can afford a longer time scale.
The other component of share value is how much you think the shares will
rise over a period of time. Ultimately this becomes built in to the P/E.
Buyers feel that although MS may not pay high divvies, it is low risk,
unlikely to go bust and the share price will rise. Hence high P/E ratio.
As far as Torex is concerned they sold their tool and catering equipment
hire business in November, allowing them to focus on their core computer
business. I.e. _small is beautiful_ concept.....
Only time will tell.
Dr G Mark Trowell
Highbridge Medical Centre
Pepperall Road
Highbridge
Somerset
TA9 3YA
Highbridge - "A cemetery with lights"
(01278) 783220
(01278) 795486 (Fax)
-----Original Message-----
From: [log in to unmask] [mailto:[log in to unmask]] On
Behalf Of [log in to unmask]
Sent: 22 April 1998 22:22
To: [log in to unmask]
Subject: Re: Torex
> Date: Sun, 19 Apr 1998 21:52:17 +0100
> Importance: Normal
> Subject: Torex
> From: "Dr Mark Trowell" <[log in to unmask]>
> To: "[log in to unmask] Ac. Uk" <[log in to unmask]>
> Reply-to: [log in to unmask]
> Interesting all this discussion. This w/e Investors Chronicle: P82. Tips
> of the Week. Buy. "Torex hits it off". Share price 99p. "The medical
> division, acquired this year, is not yet profitable, but will benefit from
a
> new Windows-based product. Chief executive Chris Moore is clear that this
> division needs critical mass, but he expects a positive contribution this
> year." "The Price/Earnings ratio is 14, falling to 12 in 1999. For a
> company with strong growth potential, the valuation is not excessive"
>
> NB Microsoft P/E is (I think) 34, for comparison, with the average market
> P/E 23
>
Not sure what all this price/earnings stuff means, but as an MCS2000
user I can't see how this latest 're-incarnation' of the company can
succeed where the previous three have failed.
Dr David J Plews
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