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  • BanMate7 BanMate7 May 15, 2008 12:41 PM Flag

    Is PE Really 90+ ?

    I am averaged in at around $48 a share. I initially came in because I wanted to invest in a relevant supply chain company taking advantage of a positive secular trend in railroads. Buffet started this avalanche, making the US railroads themselves too highly valued. Hence, I went into RAIL, TRN, and CNI.

    I plan to hold all of these for at least 5 - 10 years, maybe even 30, for my retirement portfolio. I typically sell only if valuations skyrocket and there are more compelling quality companies cheaply valued. Anyways, I am thinking of doubling down on RAIL as it is some $36 a share now. I have no doubt on its long term prospects, but it might be a chance to get in again at a good price in absolute comparison to what I paid.

    But, a PE of 90 + seems wrong. If so, wouldn't it be crazy to invest right now, waiting until earnings make this cheaper? What is RAIL doing that warrants such a high valuation? It doesn't seem to me like international exposure can justify this. And, as positive as railroad industries look, I can't see RAIL commanding such a PE.

    Any thoughts? Thanks in advance. And best of luck with your investing.

    Cheers, Mate

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    • Don't forget to add the $14 a share in cash that they have. No debt. they will make $4 a share again. The new team is determined to cut costs. The Johnstown move was a great indication of the future. Bite the bullet now for future earnings. Don't sell under $50 a share. I'm holding till $60....

    • Wow. I wish I did double down!

      :)))

      Funny how the market sometimes works. I bought at a PE less than what was current a few weeks ago, but at higher price per share. Now people are getting in at a higher PE but lower price per share. Again, experiences like this reinforce for me the idea that long term investing in quality companies is the way to go.

      I'm in CNI and TRN as well, following positive secular trends in the railroad industry. With TRN, I really hit gold early, buying very low, making a nice profit in literally 2 months...that is, if I sell.

      I won't sell. RAIL & TRN will deliver great results over the long term. It's companies like this that justified holding on to cash for a while.

      Best of luck all of you. Good company here, this RAIL.

      Cheers, Mate

    • Forward looking PE is about 16.

      It is baffling that all of RAIL's customers are doing so well, new coal plants are under construction and coming on line in the next 12-36 months and RAIL's volumes are down.

    • Remember that the PE ratio only considers recent earnings. You should consider the forward PE 16.48, as well as the average earnings levels RAIL has produced over the past say 7 years as better measures of how expensive the stock is.

      I believe the company is trading at such a high multiplier because it is commonly believed that the company will return to its past earnings levels, though it may take some time.

      I don't own any shares of RAIL.

 
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