Originally Posted by
MAC
Cyclist, PE is a metric that is often used for roughly gauging the relative value of cyclical stocks FBU, TEL, MRP etc. Value investors use PE as a quick screening tool to see if cyclical’s are under or over valued relative to the market as a precursor to performing more in-depth analysis and modelling.
Growth stocks like SUM have higher PE’s because investor’s value forward discounted cashflows, and those cashflows are increasing over time. As a rule the higher the earnings growth, the higher the PE will be for a growth stock.
If SUM report 51% earnings growth in a week or so, a PE in the 30’s will be entirely acceptable.
Do have a go at some DCF you may be pleasantly surprised, trust this assists.