Some stuff I bought last week

[DesertCat]

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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".

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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.

[Evan]

[ QUOTE ]
[ 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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You can screen for EV/FCF on Yahoo. I don't really know if I trust the way Yahoo calculates FCF (mostly because I don't know how they do it). I thougt you could also screen for EV/EDBIDA on Yahoo, but it looks like you can't. I'm sure you can somewhere though. Either way, comparing firm values to equity cash flows is just misleading. If you make sure you're comparing two like metrics you'll get much more meaningful results.