Take a look at Barratts numbers - it has a dividend yield of 40 percent and a price to earnings ratio of less than one! It is down 93 percent in one year, and 20 percent so far today.
Investors must really hate this stock.
11 comments:
Anonymous
said...
A p/e of less than one! Doesn't that mean that if you buy a share the dividend in one year will cover the cost?
Yup. The market says "insolvent". I take it you've been watching Lehman's today? In the office here we had more excitement in the first hour of NYSE exchange than all of Euro 2008 combined.
It is slightly misleading to say that P/E is based on the past. The Price is the current price - and the E is what the earnings prediction was when it was last done... maybe almost a year ago.
I wouldn't hang your hopes on a big dividend from a company that needs to raise £1bn to survive and is making a loss every day.
They had 113,500 plots for future houses at the end of 2007 too... but need income to service almost £2bn in debt.
Vodka, I agree... similarly, you could say that any company which devalues by significantly over 90% in one year is a sign of a very sick company.
The point I made about P/E ratios, however, has a far wider significance. We are now undoubtedly in a bear market... and traditional wisdom in a bear market is to buy stocks with a high P/E ratio. The snag is that the P/E ratios for many companies - not just Barratt is plain fantasy. We should not, for example, believe the P/E ratios of banks or retail operations... unless we are absolutely convinced by the earnings projection.
The old stockbrokers rule was always that if the dividend yield was larger than your hatsize (in inches) then the market thinks the divi is certain to be cut.
11 comments:
A p/e of less than one! Doesn't that mean that if you buy a share the dividend in one year will cover the cost?
p/e is based on the past, the future is grim.
Those numbers suggest bankruptcy is imminent.
Yup. The market says "insolvent".
I take it you've been watching Lehman's today? In the office here we had more excitement in the first hour of NYSE exchange than all of Euro 2008 combined.
Mind you, we're sad.
Nick
It is slightly misleading to say that P/E is based on the past. The Price is the current price - and the E is what the earnings prediction was when it was last done... maybe almost a year ago.
I wouldn't hang your hopes on a big dividend from a company that needs to raise £1bn to survive and is making a loss every day.
They had 113,500 plots for future houses at the end of 2007 too... but need income to service almost £2bn in debt.
asteve, going backwards or looking fowards a p/e ratio of less than one is the sign of a very sick company.
Barratt - overloaded with debt, too much land and no market for its product.
Vodka, I agree... similarly, you could say that any company which devalues by significantly over 90% in one year is a sign of a very sick company.
The point I made about P/E ratios, however, has a far wider significance. We are now undoubtedly in a bear market... and traditional wisdom in a bear market is to buy stocks with a high P/E ratio. The snag is that the P/E ratios for many companies - not just Barratt is plain fantasy. We should not, for example, believe the P/E ratios of banks or retail operations... unless we are absolutely convinced by the earnings projection.
I've done some fun with numbers on Barratt's 2007 interims.
Looks like the stock market is pricing in a house price crash back to mid-1990s levels (adjusted for earnings).
The old stockbrokers rule was always that if the dividend yield was larger than your hatsize (in inches) then the market thinks the divi is certain to be cut.
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