Forex Magnum


This Stock’s P/E Proves its Potential


Using price-to-earnings ratio as a valuation tool can help find great values for long-term investors, notes Julie Carnevale of F.A.S.T. Graphs.

Let’s look at Aflac (AFL) as our example for using the P/E ratio to identify significant undervaluation. In order to accomplish this goal, we are going to properly utilize the P/E ratio as a relative measuring stick.

As previously pointed out, looking at the P/E ratio in a vacuum is an ineffective and mostly irrelevant way to use it. The P/E ratio only brings value to security analysis when it is applied and looked at relative to the past, present, and future earnings power of the company or companies being analyzed.

The P/E ratio is a measurement of current valuation in the static sense, but it is a more relevant measurement of valuation when looked at dynamically relative to the future growth potential of the underlying business (earnings growth). Because only when the future growth of the business is correctly ascertained does the P/E ratio draw a true picture of valuation.

Trading at Half its True Worth

Aflac has achieved a consistent above-average earnings growth rate of 17.1%. Therefore, since calendar year 1997 and up through calendar year 2008, the market applied a normal P/E ratio of 18.6 on Aflac’s shares.

However, the great recession of 2008 changed all that. Yet even after earnings have rebounded strongly in 2009 and 2010, and expected to continue for 2011, the market stubbornly applies a current P/E ratio that is less than half its historical norm (see red circle on graph below).

Even when considering today’s significant undervaluation of Aflac’s shares, their long-term shareholders have been handsomely rewarded in excess of the general market (as measured by the S&P 500).

Aflac is a Dividend Champion, and on October 26, the Board of Directors of Aflac announced a 10% dividend increase marking their 29th consecutive year of dividend increases.

NEXT: Interpreting the Estimated Earnings and Return Calculator


Sei un Analista Tecnico Indipendente Professionista del mercato FOREX? Registrati anche tu nella comunità ed elabora insieme a noi strategie automatiche di successo! Dettagli


Sai programmare in MQL o usare il MetaTrading? Registrati e contribuisci alla programmazione di trading system, script e indicatori per MetaTrader. Dettagli


Ti piace il Trading? Vieni in Trading Room a Cosenza, guarda le analisi tecniche real time dei nostri indicatori e decidi quando entrare nel mercato. Corsi base ed avanzati. Dettagli

Non esistono ancora Commenti per questa news.

Archivio News


1 2 3 4 5 > >>

This Distributor Is a Bargain

10 Comeback Stories to Watch in 2012

Bouncing Back, Five Cents at a Time

8 Stocks for a Flourishing Income Portfolio

Quantitative Easing and Its Impact on Gold

Option Outlook 2012

Market Outlook 2012

Five Step Trading

3 Stocks Show: ‘It’s Earnings, Stupid’

3 “Golden Rules” of Forex Trading

2 Rock-Solid Short-Term Bond Funds

This is Not a Test…It’s a Buy

4 Bright Spots in a Bear Market

Top Resource Stocks for 2012 on Sale

This Growth Stock Remains in Style

This Stock’s P/E Proves its Potential

A New Day for the Airline Industry

6 Metals Plays Primed for Strong Gains

3 Little Names That Can in 2012

This Classy Retailer Is Above the Fray

An Easy and Effective Way to Buy MLPs

Want to Diversify? Start with These 5

3 Names Right out of Santa’s Gift Bag

5 Income Stocks That Defy Volatility

5 Stocks Quietly Riding the Trends


1 2 3 4 5 > >>