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As a new Take Stock user I have the following questions/concerns.
I'm analysing BMA.
I cannot manually come up with the same Average High and Average Low PEs no matter how hard I try.
Also, to me it seems that the Risk Index is incorrectly calculated. I understand the Risk is the Current Price (assuming I buy at the current price) minus the Forecasted Low Price. I think that the Reward would be the Forecasted High Price minus the Current Price (again assuming I buy at the current price).
Lastly, in Ellis Traub's book Take Stock, 3rd edition, he says to be leary of HVRs and Risk Indices that are very low (which they are for BMA) and yet the Quality Rating is 6.x. What am I missing?
Confused.
Newbie Jim
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Rank: Advanced Member
Posts: 105
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> I cannot manually come up with the same Average High and Average Low PEs no matter how hard I try.
This a rounding issue. If you calculate the PEs yourself from Price and EPS, then calculate the 5-year average PEs from that, you'll get the average PEs shown.
> Also, to me it seems that the Risk Index is incorrectly calculated. I understand the Risk is the Current Price (assuming I buy at the current price) minus the Forecasted Low Price. I think that the Reward would be the Forecasted High Price minus the Current Price (again assuming I buy at the current price).
The calculation you suggest is the Risk/Reward Analysis on the SSG. The Risk Index is calculation is shown on the TSSW Form Back and is (Current Price minus Low Price) / (High Price minus Low Price). Here too there is a rounding issue. You'll notice that Potential Low is shown as 14.04 and so Potential High - Potential Low should be 87.26 - 14.04 = 73.22. However this Risk Index calculation shows this as 72.93. The problem appears to be that the 14.04 Low Price is calculated from a rounded Low PE (2.4). The unrounded Low PE of 2.45 which gives the correct low price of 14.33. I'd say this is a bug.
> Lastly, in Ellis Traub's book Take Stock, 3rd edition, he says to be leary of HVRs and Risk Indices that are very low (which they are for BMA) and yet the Quality Rating is 6.x. What am I missing?
Quality and HVR are two very different things. It's certainly possible for one to indicate "good" while the other indicates "beware".
-Jim Thomas
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Jim,
Thanks for the reply.
With regards to my first question it seems to be more than a rounding issue unless I misunderstand. Looking at the High PEs: the last five years PEs (4.8, 10.8, 13.1, 10, and 8.4) I get a five year average high PE of 9.36. Eliminating the outlier of 13.1 I get a four year average high PE of 8.42. My TakeStock worksheet shows the value to be 10.6 Similar results with the average low PE.
I don't have an issue with the rounding of the Risk Index. I guess I figured that it was a similar metric as the Risk/Reward Analysis on the SSG only expressed differently. I was hoping that I could use both Take Stock and the SSG but maybe I'm better sticking with just the SSG.
Thanks,
Jim Hopkins
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Rank: Advanced Member
Posts: 105
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> Looking at the High PEs: the last five years PEs (4.8, 10.8, 13.1, 10, and 8.4)
> I get a five year average high PE of 9.36.
When I add those numbers and divide by 5 I get 9.42 (vs. 9.43 shown on the SSG).
However, the actual high PEs are:
27.12 / 5.66 = 4.792
51.94 / 4.79 = 10.843
56.99 / 4.35 = 13.101
33.85 / 3.38 = 10.015
26.67 / 3.17 = 8.413
Those total to 47.164 and dividing by 5 gives 9.43 which is what's shown on the SSG.
> I don't have an issue with the rounding of the Risk Index. I guess I figured that it was a similar metric as the Risk/Reward Analysis on the SSG only expressed differently.
It is. Risk Ratio expresses the amount of risk (current price down to forecast low price) as a percentage of the total range from forecast high price to forecast Low price. A 3-to-1 Risk/Reward Ratio means the potential reward is 3 times larger than the potential risk. In other words, 3+1=4 parts total range from high to low of which 1 part is risk. So, the Risk Ratio is 1/4 = 25%. In general, an N-to-1 Risk/Reward ratio is equivalent to a 1/(N+1) percent Risk Ratio.
With Risk/Reward Ratio, larger is better (up to a point). With Risk Ratio, smaller is better (down to a point).
-Jim Thomas
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Jim,
Agree that the average of the PEs is 9.42 rather than 9.36 that I mentioned in my post - my mistake. But my original post indicated that I couldn't match the five year average PEs in Take Stock. The average high PE and average low PE from Take Stock (with no judgement added) are 10.8 and 3.8. I have no issue with the SSG produced by Toolkit 6. My hope was to use both tools to evaluate a stock but won't feel comfortable until I have more faith in Take Stock.
Your explanation of the Upside/Downside and Risk Index helped.
Thanks,
Jim Hopkins
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Rank: Advanced Member
Posts: 105
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Sorry, I misunderstood your original question.
> The average high PE and average low PE from Take Stock (with no judgement added) are 10.8 and 3.8.
In the PE Ratio Analysis section on the back of the TSSW form, the values you quote which are labeled as averages are in fact medians. For example, the seven High PEs in order from high to low are 16.9, 15.3, 13.1, 10.8, 10, 8.4 and 4.8. The value in the middle of that list (the 4th one) is 10.8.
I don't know why those PE's are mislabeled.
-Jim Thomas
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