#20
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Re: Some stuff I bought last week
[ QUOTE ]
If anyone's wondering why I call P/E a "completely flawed metric", you should go compare a bunch of companies in similar businesses with varying debt levels. You will almost always "determine" that the higher levered companies are the most undervalued. P/E uses a firm value and compares it to an equity cash flow; that makes companies with excess debt appear deceptively "cheap". [/ QUOTE ] Well, the best way to value a company is EV/FCF, wouldn't you agree? But if I use those terms here, half the audience won't understand. So I often use PE and market cap when writing about a stock just to be more easily understood. When I'm doing my own analysis, I don't have a screener that understands FCF or EV, so I use PE and market cap to screen with. Then I have to do the dirty work of calculating EV and FCF by hand for anything that looks interesting. But before I get there I'm using PE as a shortcut until I figure out whether FCF is wildly different than E. |
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