Do you use the interpretation of well-known, acclaimed and much-used PER?, How reliable is this ratio so often in the field of fundamental analysis?, Does it provide real and serious evidence showing the evolution of the prices of international financial markets? . In recent months, several international financial publications have questioned the usefulness of this ratio even though it is one of the basic pillars on which rest many investors and analysts when valuing a company.
The Price Earnings Ratio or PER is the number of times the profit after tax of the company is contained in the price or share price (PER = Price / Earnings per share), meaning that the PER will reflect the number of years it would take to recover our investment in the sole factor "benefits" without taking into account inflation.
The main variables taken into account when determining the value of the RSP are:
- Growth. (The expectations of higher future profits will translate into increased shareholder value-growth treated as constant generation and increased cash flow benefits and always with a view that falls within a broad time horizon).
- ROE (return on equity).
- Payout (Part of proceeds to the dividend).
Using these variables it comes to solving one of the best kept secrets trying to answer this question. What criteria do investors to know what price they will pay each time for each title?
Importantly, loss-making enterprises often have a PER undetermined. PER values between 0-10 show situations of undervaluation. Between 10 and 17 results in a standard situation and positive. And levels between 17 and 25 indicate overvaluation, since in this context is thought that companies will have great benefits.
Common tendency to compare current with historical PER, and PER at sectoral level between companies in the same sector to try to justify investment decisions.
The PER is used as part of fundamental analysis, although we review the highly psychological component attached to it. It is a ratio to keep in mind when to include a value in a portfolio and that many times if you can give accurate guidance about what will happen to contributions especially in the long run.
What gives this ratio tracks?
Obviously, it should not be used for a short-term speculative investment but rather determining the composition of a portfolio or as a factor to consider in taking positions in a broad time horizon.
The combination of a low PE and high dividend yield often the perfect cocktail for taking a bullish position with a view over the long term.
By contrast, a high PER and a dividend yield more discreet will be the perfect argument for or kept out of the market waiting for more attractive prices or for taking bearish positions.
Basically this is the formula used by the world's major financial Warren Buffet, so I think it should not be as bad or have as much disrepute as some are trying to prove. Moreover, this is one of the keys to investment success not only Buffett but many international investors.
¿Divergence between price and performance?
A major criticism often made by leading critics of the PER, is given by the time lag between the publication of the profits of an enterprise and the reflection of those figures in their quotations. Many times we talk about current rates considering past profit figures.
One wonders what criteria based on the prices reflect the real value of a company based on the results of your accounts. If we adjust to the consideration of estimates for benefits after the current exercise, it may occur in the interim of time changes in the environment or economic conditions that make the estimates were taken as reference become inaccurate or misleading.
Loss of confidence
A controversial article in the Wall Street Journal recently published entitled "The Decline of PER" These data demonstrate a loss of confidence that is being generated by a sector of the international investment community with respect to this ratio that looks back more 100 years of history.
Looking at a graph of the PER of S & P 500 we see currently in the area of 12.2. Note that earnings expectations in the estimates of analysts constantly being revised downwards. Recently, there has been a decline from the level of 14.5 in May to 12.2 today. The decline in the last year was 36%, the sharpest drop in PER of S & P 500 since 2003.
At these levels where the PER is historically always have been sharp upward movements in financial markets in the 7 or 8 years later. As the current economic climate responds to an exceptional situation, we can find levels even lower PER of current and therefore lower prices than we can see today.
It is very likely see levels of PER in the S & P 500 in the environment 9-10, and those levels translate into the possibility of a winning investment almost certainly in the long term. Remember that after the Second World War the PER of the S & P 500 hit its lowest at 5.9. And in the decade of the 80 values were 6.68.
The case of Spain
In regard to the national level, the current PER Ibex 35 is located in the environments of 10.72 and PEG ratio estimates (Price / Earnings to Growth) for 2010 are negative in our country (-0.50 .) This PEG ratio takes into account profit and share price and then compared with expected growth.
Comparing the Spanish PER PER with other countries such as Italy (PER13, 93), Germany (PER15, 50), UK (PER14, 11) PER shows that our quotes are not expensive, but we'll see lower prices. Within companies of Ibex 35 companies with a higher PER Iberdrola showing levels of 23.35 PER, certainly nothing attractive to investors who look at this ratio when investing.
And among those that we see very attractive with a PER and an investment opportunity if we consider this ratio is BBVA, with a PER of 7.93. I think the most likely scenario translates into a market correction between 10 and 15%, and then we would have a historic opportunity to regain money on the stock exchange within 5 to 10 years.
"The Price is what you pay. Value is what you get." This famous phrase Buffet describes very well the importance of the PER. And no doubt be said that this ratio should be above the table of anyone who is considered a good manager, analyst or investor.
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Brent and West Texas are types of oil which, without going into details of chemical compounds, the important thing is that economically summarize the two main types of extractions and marking prices in the markets.
In the case of Brent, extracted mainly from the North Sea, and which refer to the European markets, while West Texas Intermediate is extracted mainly from the fields of Texas and are taken as benchmark oil prices USA.
The currency in which it is listed both on the dollar, due to globalization, although the composition of the two is not exactly the same, typically priced at similar prices.
Large numbers of the final products depend on oil consumption as raw material, so a rise or fall in demand for products affects oil demand and thus to increases and decreases in oil reserves.
As need to bring order to the oil industry and maintain fair prices while avoiding the waste of a good with limited resources comes the Organization of Petroleum Exporting Countries ( OPEC ), international economic organization created in response to lower prices oil official agreed unilaterally by large distribution companies in August 1960.
The statutes of the OPEC say their goal is to coordinate and unify petroleum policies among member countries, "in order to ensure fair and stable prices for petroleum producers, providing efficient, economic and regular oil to countries consumers and a fair return on equity for investors. "
The OPEC can have a major influence on the oil market, especially if you decide to reduce or increase its level of production. It controls about 43% of global oil production and 75% of oil reserves. Its dominance in oil exports is around 51%. In addition, it concentrates all the spare capacity of oil production in the world, which, de facto, makes the central bank OPEC in the oil market.
If we assume a constant production X at a price and a drop in oil consumption will cause oil reserves increase, so its price would be affected down to try to find the exit and minorar reserves, as an excessive increase in reserves would generate large costs of maintaining them and the consequent waste of overproduction. Following the OPEC could decide to lower production to adjust to demand, which would lower reserves and may therefore contain prices until marginal level (equilibrium price compared to costs for production, storage and distribution).
Therefore, OPEC is responsible for regulating the oil prices are the righteous, complementary to these, the National Energy Commission (CNE) is responsible for ensuring that these prices are passed on to final consumers fairly, as we talked of this Article: CNE.What is and what their missions? .
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The National Energy Commission of Spain is the regulator of energy systems, created by Law 34/1998 of 7 October, the oil and gas industry, and developed by Royal Decree 1339/1999 of 31 July, which adopted its Regulation.
Its objectives are to ensure effective competition in energy systems and the objectivity and transparency of its operation, the benefit of all agents operating in such systems and consumers. For these purposes means the electricity market energy systems and Markets hydrocarbon liquid and gaseous fuels ( natural gas , oil ...).
The National Energy Commission is governed by a Board of Directors, composed of the President, Vice President, six Directors and Secretary to speak but not vote. The President, Vice President and the Directors are appointed by the Government of Spain by Royal Decree upon the proposal of Minister of Industry, for a term of 6 years, which could not be removed and may not be appointed for more than 2 terms (max 12).
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In economics , inflation is sustained and widespread increase in the price level of goods and services, measured against purchasing power. Is also defined as the decline in market value or purchasing power of a currency in a particular economy, which differs from the devaluation , since the latter refers to the fall in the value of the currency of a country in relation to another currency traded in international markets like the U.S. dollar, euro or yen.
The existence of inflation over a period implies a steady increase in the price of goods in general. To measure the increase, creating different indexes that measure the average growth percentage of a weighted basket of goods based on what is measured.
The most widely used index to measure inflation is the "Consumer Price Index" or CPI , which indicates the percentage change in the average price of goods and services purchased by a typical consumer in two instants of time, using as reference called in some countries the basic basket.
Other indices such as the "wholesale price index" (IPM) and the "producer price index," which differ from the CPI that do not include duties and taxes, or profit made by wholesalers and producers. These indices are used to make specific measurements on the behavior of the economy of a country, but not used as official inflation rates.
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Euribor is an acronym for "Eur opean I nter b ank O ffered R ate", ie European interbank offered rate.
It is the interest rate at which banks lend money in the euro interbank market. Its value is calculated by the European Banking Federation , using the average prices of 64 major European banks.
This rate applies to transactions between banks in Europe we offer prices of loans that are made each of 64 major European banks, meaning that the percentage rate you pay as a bank when one leaves money .
Euribor is really only one type, but a set of them. Financial institutions use different interest rates depending on the term to which they lend money. Thus one can speak of Euribor to a week, one month or one year. The Euribor a year is normally used as a reference for the mortgage (sometimes using the IRPH or CECA ).
Its value is updated daily and Spain is published in the BOE .
It is a very important indicator of the financial market, since the one year Euribor is, among other things, is the official reference rate most commonly used for loans in Spain from January 1, 2000. Transactions completed before that date used as official reference MIBOR one year, which was the equivalent interbank market in pesetas. Most variable rate mortgages are reviewed EURIBOR because this index recorded minor fluctuations throughout the period of the loan.
The Euribor is only applied on the banks of the Member States of the European Union as part of the Eurozone . The local reference types, such as Paris or Pibor FIBOR Frankfurt joined the Euribor on 1 January of 1999 . In the case of Spain, the Euribor replaced Mibor following the devolution of the Bank of Spain to the European Central Bank .
The value of the 12-month Euribor suffered a significant decline over 2002, taking low values during the next three years (compared to previous years). In the last quarter of 2005, its value began to steadily escalated throughout 2006 he returned to values similar to those taken before this fall. On June 6, 2008 was one of the most spectacular rises up three tenths from the previous day's value and achieve the value of 5417%. The record in the Euribor was the day on October 2 that managed to reach the 5.526%.
The schedule for setting the daily changes of Euribor is at 11:00 hours.
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The European Central Bank (ECB) is the central bank of the single European currency, the Euro , and is the main axis of the Eurosystem . The ECB is part of the European System of Central Banks and subject to the provisions of the Treaty on European Community and its Constitution.
This entity is one of the most important organs of the European Union (EU) and is headquartered in Frankfurt am Main, Germany.
The ECB's main function is to maintain the purchasing power of the single currency, and thus price stability in the euro area which comprises the 15 EU countries that have adopted the euro since 1999. The ECB controls the money supply and price developments.
The legal basis of the single monetary policy is set in the Treaty establishing the European Community and the Statute of the European System of Central Banks (ESCB) and the ECB. The Statute established the constitution of the ECB and the ESCB from 1 June 1998.
The ECB is also responsible for establishing and implementing the broad outlines of economic policy and monetary union.
For this, the ECB works with the ESCB, which includes the 27 EU countries. However, only 15 of these countries have so far adopted the euro, thus constituting the " euro zone ", and their central banks, together with the ECB, form the" Eurosystem ".
The ECB has legal personality under international public law.
The official interest rates or intervention rates of the European Central Bank determines the monetary policy stance of this. Currently, interest rates ECB are:
the central rate is the minimum bid rate on main refinancing operations.
Among the operations that use the central bank to intervene in monetary policy is the open market operations to regulate the liquidity of available credit institutions, within these there are the so-called main refinancing operations, which rate tenders variable interest is responsible for injecting liquidity into the banking system. These auctions are competitive in nature and have minimal interest. This interest is the minimum output rate by the ECB.
the interest rate on the marginal lending facility
the interest rate on the deposit facility.
These two types included in the so-called permanent facilities are often set 100 basis points above and below, respectively, of the official plant.
The interest rates of the European Central Bank has considerable importance for the public because the interest of many mortgage loans is variable and is linked to Euribor rate and the rate depends largely on the interest rate that remains the central bank, its influence is beyond it also strongly influences the overall long-term rates, the price of shares and fixed assets and general economic activity as a whole.
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