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I generally prefer free cash flow yield (fcf / dollar invested), although both PE and FCF can be fucked with depending on how certain expenses are classified. T
by __blockcipher__ 9y ago
I generally prefer free cash flow yield (fcf / dollar invested), although both PE and FCF can be fucked with depending on how certain expenses are classified. That being said, if I had to choose one of the two, I would go with FCF yield every time.
- prklmn 9y agoIt's also very common now for companies to buy back a ton of stock thus lowering the share denominator in the earnings portion of the ratio, while not actually growing revenue much if at all.
- hidenotslide 9y agoYou are referring to Earnings/Share, not Price/Earnings. It doesn't matter much anyway, if they can make the same amount of money with less invested capital that should increase their metrics. And there are good tax reasons to prefer share buybacks over dividends as a way to return cash to shareholders.
- prklmn 9y agoI was referring to both because EPS is wrapped up into P/E... P/E = stock price / (earnings / # of shares oustanding) And it actually does matter because a company can steadily grow EPS while not growing revenue meaning that something might be amiss, but it can easily be overlooked because EPS has been growing. Also, there are plenty of reasons not to want buybacks. Many times companies will buy their stock when it's at highs, thus destroying value for shareholders.
- hidenotslide 9y agoI agree, I should have mentioned free cash flow. Of course the real answer is to look at many metrics and get a broad picture. But I doubt you are going to find a "value investing" reason to buy AMZN at these levels, it's clearly a growth stock.