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ITT Educational Services Inc. Message Board

  • oxledge oxledge Aug 15, 2012 11:48 AM Flag

    Current valuation dynamics outside my realm of experience

    I have to say that even with +30 years experience in investing, I have never seen a situation like the present where stocks for sound companies with great balance sheet and long proven track records go to single digit multiples. Look at Lexmark. They are slated to earn $3.70 and the shares were trading at $17 recently. Furthermore, instead of having a huge stock buyback program (they have a modest one), the company pays a dividend at an incredible +7% dividend yield rate. p/e less than 5 and yield of 7%. Balance sheet is in excellent shape too and free cash flow is fantastic.

    Similarly, ESI at p/e of 3 something. Had ESI paid all the cash it used to buyback stock in the past year ($300 million I think the figure is), that number would translate into a 40% dividend yield. ESI also has a fantastic balance sheet.

    And the list goes on. The worst I ever read about was in the 1974 time frame when inflation was running 16-17% (interest rates the same or higher) and stocks collapsed to p/e's of 7. Now, we have inflation at 1-2%, interest rates at zero and many stocks trading at 3-5 times p/e.

    Despite this, there are some stocks that have "favored growth status int he marketplace and these command p/e's that are astronomical. Now, for the most of my experience, there have always been a few of this massive p/e stocks around, until they all eventually blow up. But I have never seen anything like the present. I must be a dinosaur or the market will just continue to throw everyone new curve balls that they have never experienced before (eg all this computerized trading stuff that seems to blow up ever few months).

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