One of the most common questions we receive regarding FAST Graphs is: why are P/E ratios different on the historical graphs versus the forecasting calculators? Although this is a fair question, it also illustrates that many of our users are not fully understanding how the tool is designed and/or how it works or should be interpreted. Therefore, I offer the following analyze out loud video to illustrate how, why and when the valuation multiples will change on a FAST Graph.
However, before I post the video, a few introductory remarks on what FAST Graphs are, how they work and how they are intended to be utilized are in order. For starters, FAST Graphs are a tool, and like any tool, their value will be proportionate to the skill of the person utilizing the tool. The acronym FAST stands for fundamentals analyzer software tool. The acronym is telling us that this is a tool that can help you analyze the fundamentals of a stock. Nevertheless, the word analyze (analyzer) is the key concept to adopt.
In this context, we market FAST Graphs as a “tool to think with.” Therefore, it is important to understand that FAST Graphs are not designed to dictate fair value, instead, they are built to reveal it. As a result, it’s up to the user to analyze what the tool reveals and use that information to make smarter and more prudent long-term investment decisions. Nevertheless, it’s also important to recognize that judgment is required.
We believe that FAST Graphs can help investors of all levels make better decisions regarding when to buy, sell or hold a publicly traded common stock. Moreover, we believe our tool does that perhaps better than any other tool. And in this context, we further contend that FAST Graphs are an authentic research tool that are simultaneously powerful and comprehensive.
By authentic we are suggesting that FAST Graphs do not purport to be anything more than they are. Making sound buy, sell or hold investing decisions on common stocks is difficult and impossible to do perfectly. However, FAST Graphs do facilitate that task within reasonable margins of error. Assessing the fair value of a stock can only be done within reason because of the dynamic nature of trying to assess the value of a business with incessant ongoing operations. Investors need to recognize and accept that a business is constantly generating changing operating results. Therefore, calculating metrics such as earnings, cash flows, sales, etc., simply means taking a snapshot at a moment in time that has already passed.
FAST Graphs Analyze out Loud Video on Interpretation of Valuation Reference Lines
Disclosure: Long SO,JNJ,CTSH
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.