Use multiple valuation metrics--not just the ratio of price-to-earnings but the ratios of price-to-sales and price-to-book.
Even though we have had some recent disappointments, we believe estimates being reset will be a positive move to remove any overhanging concern and get a more realistic valuation multiple for the shares.
Investors that are valuing the company by applying a valuation multiple to 2011 or 2012 EBITDA forecasts, figures that will be temporarily depressed due to higher input costs, will end up with lower valuations for the company than us.
That will certainly give you a high multiple of earnings for the share valuation.
We thought that using earnings and conservatively assuming no multiple expansion was the best course of valuation.
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And at 14 times earnings, Penney's stock offers a pretty attractive valuation relative to the average industry multiple of 16 times earnings.
He uses a valuation of 10x, below the 14x multiple on 2012 estimates for Accenture, and 12x for IBM.
The problem was valuation which ratcheted to a price-earnings multiple near 30.
That is code for a high valuation, with the company sporting a 29x multiple of forward earnings compared to a 13x industry average.
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Separately, given the multiple contraction in Chinese equity markets, we believe a slightly more conservative approach to valuation for Alibaba makes sense.
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The valuation argument for investing in this stock still holds as now it is trading at multiple that is a strong discount to growth, even if growth is discounted by an increase in subscription cancellations.
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