Tuesday, June 21, 2011

multiple contraction

Reading Rule #1 by Phil Town, I was struck of how high multiples were back then (5 or 10 years ago).

For example, two of his favorites were WFM and HOG.

For WFM, PE has gone from 43.7 in 2001 to 34.0 in 2006 to 32.8 TTM. Well actually not that bad here. Looking at the ten year chart, the price has gone from under 20 to near 80 in late 2005 to 10 in late 2008 and is back near 60. Revenue growth went from 24% in 2001 to 19% in 2006 to 12% in 2010.

For HOG, PE has gone from 38 to 18 to 28. P/S has gone from 4.9 to 3.1 to 1.8. The price has gone from almost 50 to the 70s in 2006 down to 10 in early 2009 and is now at 38. Revenue growth 16, 16, 2.

Others.

MSFT. PE went 61, 26, 10. PS 14, 7, 3. Price around 36 ten years ago to 22 in 2002 back to 36 in 2007, down to 16 in early 2009 and currently 25. Revenue growth 10, 11, 7.

CSCO. PE -63, 29, 12. PS 6.5, 5.7, 2.0. Price 18 to 10 in 2002 to 33 in 2007 to 15 in 2009 to 26 in 2010 and currently 15. Revenue growth 18, 15, 11.

ORCL. PE 32, 25, 21. PS 7.6, 5.7, 4.6. Actually not bad. Price near 20 to under 10 in 2002 to over 35 early this year and currently 32. Revenue growth went from 7 to 22 in 2006 to 15 in 2010.

JNJ. PE 32, 18, 15. PS 5.5, 3.7, 3.0. Price has gone from 50 (which turned out to be the ten year low also reached in 2003 and 2009). It hit a high of 70 in 2008. Dipped back to 50 in 2009. And currently at 66. Revenue growth 13, 6, 0.5.

PG. PE 37, 23, 17. PS 2.8, 3.0, 2.4. PG has gone from the low 30s to the mid-70s in 2007, dipped down to the high 40s in 2009 and is back up to 64. Revenue growth -2, 20, 0.

Looking over the data, stocks look pretty cheap just looking at the multiples (but growth slowed too which probably explains a lot). And the second thing is that there were opportunities to buy and sell during the decade. Buy and hold wouldn't have worked as well (assuming you bought and sold at the right time).

Well let me add the growth data above too. Looking at it, the revenue growth really wasn't that high back in 2001. But it had probably fell off a lot already from 1999, 2000 levels.

0 Comments:

Post a Comment

<< Home