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monu_duggad
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Joined: 07/Sep/2006
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   Topic: PE de-rating vs. PE re-rating.
Posted: 21/Sep/2006 at 12:15pm |
How does a stock get re-rated ?
And when it does get,say from a PE of 20 to PE of 15....who decides this? And once the news is out that a stock will get rerated from 20 to 15...does the price reflect this change immidiately ? Say on the next day....
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basant
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Posted: 21/Sep/2006 at 12:28pm |
How does a stock get re-rated ?
And when it does get,say from a PE of 20 to PE of 15....who decides this? And once the news is out that a stock will get rerated from 20 to 15...does the price reflect this change immidiately ? Say on the next day....
____________________________________________________________
PE of 20 to PE of 15.... - De ratring
The price changes first the PE is just a number derived by dividing the market price with the EPS.
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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prosperity
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Joined: 01/Sep/2006
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Posted: 21/Sep/2006 at 4:10pm |
Basantji,
The link explains very simply and very beautifully - the IMPACT of growth w.r.t. EPS de/increases...
that the PE re-rating efffects to much larger order of magnitute than simple earnings increase/decrease ..
Thanks for giving us such insights and putting these in so easy-to understand manner .....
And wanted to tell you that - you have developed a power to see the deeper meaning behind the simple concepts and happenings like PE re-rating !!!!
I have started envying you since you are a competitor to my TV18 business.. (coz i hold the stocks - i consider it my business - Buffet way)
I hope in 2010 - the internet market becomes so big that my company, TV18 should not get effected by you as its competitor ..
Just Joking !
Thanks a lot for the Equity Desk Forum !!
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basant
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Posted: 21/Sep/2006 at 4:26pm |
It took me a few years and a lot of money (would not quantify) to understand that money is lost or made in a PE derating. and rerating. It is very important to keep track as to whether the PE would expand or contract or remain the same. Most of the time money is made in growth stocks because the PE expands and money is lost because the PE contracts.Money lost from a fall in EPS can be recovered but money lost from a PE derating is generally irrecoverable.
And I am also an investor to Tv 18 so we have a vested interest in the internet business going up Just the magnitude of interest varies.!!!
Edited by basant - 21/Sep/2006 at 4:32pm
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prosperity
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Posted: 21/Sep/2006 at 5:21pm |
Buffet says - Ignore Markets and what price they are paying you for the stock that you hold... If you are owning a business that classifies as Buffet kind of investment - then the time to sell is NEVER..
So i never thought of how market is giving me money - whether it has given me money from earnings increase or from PE re-rating ...
And all the time i felt, i am following Buffet...
But reading your article on PE re-rating and de-rating - i have started thinking again - challenging my earlier conclusions !
Share your thoughts, if you get one/many !
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prosperity
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Posted: 21/Sep/2006 at 5:29pm |
Basantji,
Buffet says - Ignore Markets and what price they are paying you for the stock that you hold... If you are owning a business that classifies as Buffet kind of investment - then the time to sell is NEVER..
So i never thought of how market is giving me money - whether it has given me money from earnings increase or from PE re-rating ...
And all the time i felt, i am following Buffet...
But reading your article on PE re-rating and de-rating - i have started thinking again - challenging my earlier conclusions !
Share your thoughts, if you get one/many !
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omshivaya
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Posted: 26/Sep/2006 at 1:31am |
A smaller company with fast growth may be growing 50% y-o-y Basant jee while Infy at such a bulk of revenue having a growth of 35% is also good. But, the smaller company deserves a higher PE than an Infy, as its rate of growth in coming years should be higher than Infy's.
TCS at 10 billion US$ and a PE of 30 let us say and Nucleus software with revenues of 300 million US$ and a growth of 40% y-o-y. Easily, nucleus would get the higher PE.
Comments welcome and Correct me if I am wrong.
Edited by omshivaya - 26/Sep/2006 at 1:33am
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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it
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basant
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Posted: 26/Sep/2006 at 7:50am |
Growth is not the only factor determines a PE ratio management integrity; RoE; sectro leadrship etc etc are various other issues determining PE.
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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