Putting a value on stocks can be a very tricky thing to do. First of all you need to understand the P/E ratio. Basically you take the Price of The stock divide it by the Earnings Per share and you get the multiple that a stock carries. For instance for Google their price is $505 (price) / 7.86 (earnings per share) = 64 multiple. Now you can do this with any stock that has earnings, for instance Motorola... $22.46/1.68 = 13.37 multiple. So based on that Motorola is a lot cheaper than Google based on the multiple that you are paying for it.
There are a lot of other factors though that go into pricing a stock including revenue growth, float, and the general market condition. A big factor is the revenue (sales) growth, let's use Motorola and Google again. 36,843 million in 2005 and 31232 million in 2004 a 17% revenue gain for Motorola. Google's on the other hand was 6138 million in 2005 and 3189 in 2004 a 92% revenue gain. So you can see why Google gets such a high multiple. You have to also consider that Motorola pays a small dividend (small cash/stock amount for every stock you own) as well while Google does not pay any dividend yet. Normally the older the company the bigger the dividend as their revenue growth tends to slow and they need to give shareholders a reason to own their stock.
When valuing a stock though you should compare similar companies to try and find what value they should be at. Use the equation above and compare companies like Google vs Yahoo or Microsoft, Motorola vs Nokia is a good one as well. Try to compare companies in the same industries basically.
A note though, it depends on what stage you are in life as far as what you investment strategy is going to be. The older you get the less risky you should be, stick with high paying dividends and such, the younger you are the more risky you can be as it doesn't matter if you lose what you invested. I could go on forever about this subject it would seem so I will leave it at that. If you have any questions just let me know. I would also suggest reading "Real Money" by Jim Cramer, he is kinda a nut on TV but the book really lays it out very well. Good luck to you!
Lately I have heard a lot of talk about Google's stock price hitting $500. I think this makes for an interesting lesson on valuing stocks. You see there is some method to the madness of putting a value on a stock. It is not about the stocks price at all really, it is about how much return you get on your investment.
So here is a few examples of stocks that outperformed Google. First of all vdsi, Vasco data securities. If you would have invested $1000 in both Google stock and Vasco stock, the Vasco investment would be worth a cool $4963.50 a (496 percent gain) compared to Google's at $3,662.50 (362 percent gain) since Google's initial public offering (IPO). Sure a lot of people don't know about vdsi, but what about Apple computer AAPL? That $1,000 would have been $4,950, I mean everyone knows about Apple computer, but no one talks about the massive gains there since 8-27-04. Please remember that the price of one share of a company doesn't really mean anything in the end, it is more about the P/E ratio and return on investment! There is no difference in a stock going from $5 dollars to $10 and a stock going from $500 to $1,000, think about that when you think that $500 is a lot to pay for one share of a company.
You can learn more about Google here.
Why don't we have solar powered windshields and windows in cars? Harnessing the power of the sun could at least power some parts of a car. Hybrids run on gas and electric so why don't we have these solar powered windows helping store the electricity for the car? Also why can't we have a series of fans running underneath the car that kicks on when the car gets over a certain speed. This could generate some power from wind resistance that could be stored as well. I guess I just don't understand why engineers are so concerned with the look of cars and trucks and not the energy efficiency of them. I know that the car companies are all in bed with the oil companies so perhaps this what is holding us back. I mean after all we did have electric cars that were successfully produced by GM. They worked so well that GM had to pull them off the market and destroy every last one of them. Just check out the documentary "Who Killed The Electric Car?" if you don't believe me...
This is one of my favorite songs by Bob Marley... I hope you enjoy!
You can find more music celebratemusic.blogspot.com Check it out and let me know what you think.
I also just want to say thanks to everyone who has commented on this blog. Growing Growing Gone was the original and will always be my favorite. I have branched out into many different directions, as you can see in my blogger profile, but the main message still stands. Let make a difference in this world before it is too late. Thanks everyone for your support and kind words I really do appreciate it. Peace... I hope we can find it soon : )
NASA has reported just last month that there has been "dramatic" melting of Greenland's ice mass, at a rate of 41 cubic miles per year, far surpassing the gain of 14 cubic miles per year from snowfall.
U.S. climate scientists reported in September of 2007 that world temperatures have risen to levels not seen in at least 12,000 years, propelled by rapid warming in the past 30 years
In Britain Hadley Center for Climate Prediction and Research forecasts that extreme drought could eventually affect one-third of the planet if climate change is not reined in.
So what has the good old USA done about these findings... well
The Bush administration objects to Kyoto-style mandates because, it says, they would hamper U.S. economic growth. Hmm, but I thought this election was all about how great are U.S. economy is growing right now. I think we can afford a little economic slowdown to save humanity, seems like a fair trade. In fact, wouldn't developing alternative energies and great fuel efficiencies increase jobs here in the USA? Wouldn't this also help with "America's addiction to oil?"
Even our biggest ally the British released a study last week that predicts the damage from unabated climate change will eventually cost between 5 percent and 20 percent of global gross domestic product each year. So why are the money hungry "oily" politicians in the white house not doing anything about it.... perhaps they still need more proof.
In closing I will leave you with this little statistic, emissions of all industrialized countries excluding the USA declined by 3.3 percent between 1990 and 2004, while U.S. emissions grew by almost 16 percent, so who is really at fault here?
As I watch Zoltek's stock price defy the laws of gravity, I think we need to go back and ask ourselves, "how and why?" First and foremost, they did report good numbers the last quarter, but that is not the whole story. Zoltek also have a massive monopolistic hold on the carbon fiber market, which is used to make the wind generators that have become more and more economically viable as we watch the energy prices sky-rocket. This really made the growth investors flock to the company, and due to the fact that Zoltek has such a small float (number of shares available for trading) the price went up even more dramatically. Remember, that stocks on the most basic level are driven by supply and demand. Zoltek also had been mentioned by Jim Cramer on the way up, so that brought even more buyers to the table. This is very evident if you sit and watch a company with a large float like Lucent, Sirius or Motorola. These companies stock prices do not make these type of dramatic moves, because the market is so diluted with the amount of shares outstanding, that it becomes difficult for the stock to move at all either up or down. The only way a company can increase it's float is to free up some of it's restricted stock by means of a secondary offering or by issuing a stock split. Both of these tend to be signs of a healthy business, as the company is confident that there is enough demand for the stock, and these secondary offering often raise a pretty penny for the company to spend on research and development or just pay down debt. Recently, companies such as Google and Netflix have both issued such offerings to invest in research and development. So I think Zoltek will do something similar possibly. Where do you think Zoltek is headed? Post your prediction below. Price targets for any stocks welcome as well.