I've been researching Peter Lynch's methods of investing. I'm currently following the guidelines he recommended in One Up on Wallstreet to analyze potential stocks. However, this book was published decades ago so his examples from Annual Reports look different from what I'm seeing today, and I need some help translating the vocabulary/formulas.
Today I was analyzing AMD (Advanced Micro Devices) (ticker:AMD) because of the release of their latest groundbreaking CPU. But, either I'm doing something seriously wrong, or this stock is a seriously bad deal. Can you double check this? As discussed in Lynch's book, I'm trying to compare the p/e ratio to the growth rate. I found the p/e ratio listed as 119.32 in some basic info online. Then in order to calculate the growth rate, I looked for their Income Statement on the annual report from SEC.gov to try to find their Annual Earnings (as Lynch refers to it). I didn't find any chart for Income Statement, or anything listed as Annual Earnings. But I did see "Net Income (loss)" listed in several charts (Consolidated Statements of Stockholder's Equity, and Consolidated Statements of Cash Flows), as a consistent number regardless of which chart I was looking at. So I used it. Then I used the following formula to calculate growth rate:
[ (Recent Year Annual Earnings - Previous Year Annual Earnings) / Previous Year Annual Earnings] x 100 = _____ %
I Using that formula, I got a growth rate of 1.18%. This is terrible, right? Compared to a p/e ratio of 119.32?
Lynch said "The p/e ratio of any company that’s fairly priced will equal itsgrowth rate (of earnings).In general, a p/e ratio that’s half the growth rate is very positive. A p/e ratio that's twice the growth rate is very negative. We use this measure all the time in analyzing stocks for the mutual funds."
But the stock's price is sky rocketing, even now after the March crash.
What am I doing wrong?
In the annual report, it lists "net income (loss)" - what does the "(loss)" indicate? Is it just reminding us that numbers in parentheses are negative?
Thanks in advance for any assistance!
Today I was analyzing AMD (Advanced Micro Devices) (ticker:AMD) because of the release of their latest groundbreaking CPU. But, either I'm doing something seriously wrong, or this stock is a seriously bad deal. Can you double check this? As discussed in Lynch's book, I'm trying to compare the p/e ratio to the growth rate. I found the p/e ratio listed as 119.32 in some basic info online. Then in order to calculate the growth rate, I looked for their Income Statement on the annual report from SEC.gov to try to find their Annual Earnings (as Lynch refers to it). I didn't find any chart for Income Statement, or anything listed as Annual Earnings. But I did see "Net Income (loss)" listed in several charts (Consolidated Statements of Stockholder's Equity, and Consolidated Statements of Cash Flows), as a consistent number regardless of which chart I was looking at. So I used it. Then I used the following formula to calculate growth rate:
[ (Recent Year Annual Earnings - Previous Year Annual Earnings) / Previous Year Annual Earnings] x 100 = _____ %
I Using that formula, I got a growth rate of 1.18%. This is terrible, right? Compared to a p/e ratio of 119.32?
Lynch said "The p/e ratio of any company that’s fairly priced will equal itsgrowth rate (of earnings).In general, a p/e ratio that’s half the growth rate is very positive. A p/e ratio that's twice the growth rate is very negative. We use this measure all the time in analyzing stocks for the mutual funds."
But the stock's price is sky rocketing, even now after the March crash.
What am I doing wrong?
In the annual report, it lists "net income (loss)" - what does the "(loss)" indicate? Is it just reminding us that numbers in parentheses are negative?
Thanks in advance for any assistance!