Extreme PE
Posted on March 24, 2007 by Richard Beddard
Filed Under Naked PE, Investing |
On CXO Advisory Blog: A rigorous work-out for research into enhancing the predictive power of the price to earnings ratio, first publicised on Interactive Investor (see: The six cheapest stocks in the market). CXO surmises:
Careful parsing of earnings history can enhance the use of historical PE as an indicator of the value premium.
Adjusting PE to account for market, industry and style factors enhances its power as a value indicator.
An investment strategy based on extreme PEs calculated with an extended earnings history and concentrated by stripping out market, industry and style factors offers extreme returns.
The six cheapest stocks in the market is the most popular blog entry in the short history of the Interactive Investor blog, at least in terms of comments received (18). We’ll be returning to Dr Keith Anderson’s research in May, and updating the league table of stocks.
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