In the News of Companies section we provide updates on key information a company reveals about its stock, typically around the time of quarterly or annual results. Specific new developments, such as announcements about problems or future plans, may trigger such updates.
We review our expectations for each company we track at least once per quarter, updating our EPS growth rate in a table. The Stock Data Table includes several columns of information about each covered stock. For example, the Company and Symbol fields are self-evident. The Industry comes from the Morningstar/industry classifications, which are the same categories used in BetterInvesting and StockCentral data services. The next column, the current share price, is taken from a date as close to publication as is reasonably possible. The date is indicated in the column header. Other fields, such as the Current P/E Ratio, Projected Total Return, and Reward to Risk Ratio, are derived from this price.
The Current Price/Earnings Ratio (P/E) is calculated by dividing the current price as shown on the table by the earnings per share (EPS) for the last four quarters. Projected EPS Growth is our assumed annual rate of growth of the company’s earnings over the next 20 quarters (five years). This starts out as the growth rate used in the stock study presented when a company is first recommended but may be amended over time as conditions warrant.
The Current P/E and Projected EPS Growth Rate columns are next to each other for a reason. Often, investors use the PEG Ratio as a valuation aid. The PEG Ratio is calculated by dividing the Price/Earnings Ratio by the expected EPS growth rate of a company. A PEG Ratio of around 1.0, where the P/E Ratio and the EPS growth rate are about the same, indicates an undervalued situation.
Often, investors use the PEG Ratio as a valuation aid. The PEG Ratio is calculated by dividing the Price/Earnings Ratio by the expected EPS growth rate of a company. A PEG Ratio of around 1.0, where the P/E Ratio and the EPS growth rate are about the same, indicates an undervalued situation. If the P/E Ratio is wildly higher than the growth rate, the company may be on the overvalued side.
The Buy Up To price is our maximum suggested purchase price for shares. Mary of the companies that we cover in the SmallCap Informer will be selling for more than this price. If this is the case, selling is not necessarily indicated, though you may be wise to turn your attention to other companies if you are looking to add to existing holdings in your portfolio.
The Consider Selling Above price is the point at which shares may be too richly valued to provide a reasonable return. This is not a “price target” or limit price, and this price is adjusted with all other values. If a stock comes close to this high price, some subscribers might wish to take a closer look to decide whether the time is right to sell.
Projected Total Return is the possible rate of return, with dividends, if the company achieves our projected growth and reaches our projected high P/E Ratio 20 quarters from now. If you are looking for candidates on this list to add to your portfolio, it probably makes sense to start with those that offer the chance of greater returns.
The Reward/Risk Ratio compares the upside of buying a stock at a current price to the downside. It assumes that the company grows at about the rate that we project, but the market only assigns a valuation at a lower P/E Ratio. A 3:1 minimum ratio is desired for most stock purchases; the higher the ratio, the better. Finally, the Review Date is issue in which we spotlighted the company. This can be helpful in referring to your own archives or in finding the write-up in the archives of the SmallCap Informer website.