line representing the normal P/E ratio, and the orange earnings justified valuation line. The key to evaluating either of these metaphors of valuation is simply to look closely at the graph and ask yourself which line most appropriately represents a reasonable valuation for the company over the timeframe being graphed. It is also important to notice how the black monthly closing stock price line trends and correlates with both lines. In other words, where earnings go price is sure to follow.
Understanding the Associated Performance Results
As a great convenience and benefit to the subscriber, F.A.S.T. Graphs™ automatically calculates the performance of the company over the timeframe graphed. The performance results table is easy to interpret and understand. Just under the company’s name and symbol is the performance table. The top of the table shows the amount invested, the beginning shares purchased, and the split-adjusted price for the date in which the graph begins. At the top right corner we see the closing values and closing prices through the previous day’s close.
Next we have the dividend cash flow table. Here you see the fiscal year-end, the dividends per share, the dividend growth rate, earnings per share payout ratio in percentages year-by-year and averaged for the timeframe, the end of period shares, dividends paid, and finally, yield on cost. Tallies are given at the bottom of the table for the appropriate columns.
Finally, the performance report shows total cumulative dividends paid, the amount of capital appreciation and the annual return it represents, followed by total return information that includes dividends in the total. In the example below, dividends are not reinvested, but F.A.S.T. Graphs™ are given the option to calculate the same performance with dividends reinvested by simply checking a box and redrawing the graph.
The Estimated Earnings and Return Calculator – A Forecasting Graph
Finally, the basic Earnings and Price Correlated F.A.S.T. Graphs™ set includes a forecasting graph. Before we explain the components of this simple graph, the reader’s attention is drawn to the word “calculator” in the description. Subscribers are given the option to input their own estimates into the Estimated Earnings and Return Calculator (Note: The growth rate in the calculator may be different than the growth rate on the historical graphs above.)
However, the default setting for F.A.S.T. Graphs™ is based on reporting the consensus estimates of leading analysts reporting to Standard & Poor’s Capital IQ Company. The number of analysts and the estimated five-year earnings growth rate is listed in the green rectangular box in the FAST FACTS to the right of the Estimated Earnings and Return Calculator graph.
Additionally, there are two other estimates that the Estimated Earnings and Return Calculator provides. The second estimate is a specific dollar amount for the current fiscal year’s (in the example below 2013) earnings per share found directly below the graph, and is marked with a capital “E” for estimate. Finally, the third estimate is also a precise earnings per share number forecast for the next fiscal year.
Summary and Conclusions
F.A.S.T. Graphs™ are easy to interpret and utilize when you know what you are reviewing. The orange line on the graph shows earnings per share and reflects the growth rate of the company’s operating history. The black line represents monthly closing stock prices and how they track those earnings. The light blue shaded area shows dividends, and an additional dividend expression is given by the light pink line in the dark green shaded earnings area. The dark blue line on the graph calculates the price earnings ratio (normal P/E) that the company has historically traded at during the timeframe being graphed.
Now you know why we state that F.A.S.T. Graphs™ provide essential fundamentals at a glance. In an instant you can see how well the business behind the stock you are reviewing has done, how the market has historically priced it, how the market is currently pricing it, what type of performance this has generated for shareholders, and finally, how the stock is currently being valued by the market place.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
