If the PE was 17 based on FY2014 earnings, that implies a share price of:
17 x 0.115 = $1.96
If I was looking to buy SKL shares at that price, my expected return, as per my model over a ten year timeframe is as follows:
1.96(1+i)^10 = (3.24 +1.23) => i=8.6%
A compounding return of 8.6% is OK, but not nearly as compelling as 12.1%. If it were me I would be looking out for other opportunities. Paying $1.96 for SKL shares does not excite me. You may have been right to sell Percy if you had better opportunities elsewhere.
Very likely true Percy. There may be opportunities in the next year or so when the share price dips. I didn't buy all the SKL shares I wanted at $1.33 for exactly that reason. The likes of Buffett sees these downturns as an opportunity to buy when the underlying long term outlook of the company is strong.Quote:
With Aussie mining slow down, a little uncertainty in US market,and the new Christchurch not coming into production until the end of this calendar year,I think earnings will be flat,
12.6 is an average PE taken at September 30th (about when the annual result is made public) each year. It isn't meant to be over generous or under generous. It is just a mathematical calculation.Quote:
so your 12.6 PE model may be over generous.
In bad years the PE may be higher (in anticipation of an ultimate recovery). In good years the PE may be lower (in anticpation of the party not lasting forever). I do not expect the actual PE to hug this average of 12.6. But if I look a decade into the future, not knowing whether the share will be in an upcycle or downcycle, this is the average of what it might be based on what Mr Market has valued the share at in the past.
If you think I should use a lower figure than 12.6, what you are saying is you expect the long term rating of the share to be lower in the next ten years than the last nine. The business has a history of performing well, so it would be incongruous to mark it down on a PE basis. 12.6 (average) is still my best guess going forwards based on nine years of SKL history.
SNOOPY