February 22, 2019 07:13 PM RSS

Basic Fundamentals Of Investing Starts With Earnings

  • Wall Street Rebel | Geoff Garbacz
  • 08/11/2018 1:20 PM
Basic Fundamentals Of Investing Starts With Earnings

So you are new to investing or someone has been managed your retirement and regular assets up to this point in time. Now however you want to get in the game. If grandmothers can beat the stock market, then it is possible that so could you.


The grandmothers I am referring to are the Beardstown Ladies who hailed from Beardstown, Illinois which is due west of Springfield, Illinois. The ladies wrote a book "claiming" that from 1983 to 1994 they annualized 23.4% a year.

Later we found out that the returns were more like 9.1% when the S&P 500 return 14.9% a year annualized. Nonetheless, these ladies brought to attention that anyone can invest in the stock market with a little common sense and some knowledge of key metrics.

So going forward on weekends, we will explore various metrics that can be found on Fin Viz. I like this free website better than other websites like Yahoo Finance because the metrics we are going to talk about over the next few weeks are easy to find. Also, Yahoo Finance is very slow to navigate its website.

When you go to the Fin Viz website you will see at the very top a box that says "Search ticker, company or profile". This box is a nice feature because you do not need to know the ticker or symbol for the company you are looking up. 

As an example, Proctor & Gambles (PG) has the symbol PG. So when you go to look up a company you can either type in the company name or the symbol. In this case, type in PG.

Today we are going to look at the second and third column which lists the earnings information for a company.  The first data to discuss is the EPS (Earnings Per Share). This is found at the top of column three. Proctor & Gamble is expected to earn $3.93 this year and $4.70 next year.  Below those numbers you will find the EPS for the next quater. 

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Then under that we get the growth rates of earnings for a variety of periods. I like to compare earnings growth to next year EPS next Y which is 6.26%.

In the chart, you will find the closing price. On Friday, that price was $81.43. The top data point in the second column is the P/E (Price To Earnings Ratio). The ratio is price divided by earnings for the current year.
In the case of Proctor & Gamble, the P/E is 20.70.

Next year the earnings of Proctor & Gamble are expected to be $4.70 as noted above. So when we divide the next year earnings of $4.70 by the current price we get a Forward P/E of 17.32. This data point is right under the P/E.

Key to investing is making sure that you are buying stocks that have earnings. Stocks without earnings are very speculative. They can provide a strong return if a key drug is proven to be a success or a new product is launched but we have found that there is a clear advantage to buying stocks with earnings over those with no earnings.
  




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