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I’m going to play a game with you today – which share is better value?
Presented below are some numbers for the two dominant firms in one industry. You’ll notice that for all intents and purposes the long term performance numbers are close together.
However, the first is on a one-year PER of 15.3 and a ten-year cyclically adjusted price earnings ratio of 16.4.
The other is on a one-year PER of 14.3, and a ten-year cyclically adjusted price earnings ratio of 8.5. The first has a market capitalisation double the second.
The question is: does the share price difference make sense?
I do not know the answer to this – yet. It is my job to investigate the facts to try and figure it out over the next few days.
I was drawn to these two because the CAPE of the second is so far below the average of a typical UK share (around 13). Thus the ‘cheaper’ of the two might enter my CAPE portfolio.
On the other hand, the share with the higher PER might have sufficiently better growth potential to more than justify its share price.
Mr Market’s values
| Company A | Company B | |
| Share price | 245p | 116p |
| MCap | £1,080m | £431m |
Earnings over 10 years
| Pence per share | Company A | Company B |
| 2006 | 10.0 | |
| 2007 | 13.2 | 14.3 |
| 2008 | 14.7 | 9.7 |
| 2009 | 15.2 | 13.9 |
| 2010 | 12.1 | 10.7 |
| 2011 | 18.0 | 18.3 |
| 2012 | 19.5 | 21.2 |
| 2013 | 14.4 | 13.6 |
| 2014 | 16.3 | 14.0 |
| 2015 | 16.0 | 12.9 |
| 2016 | Forecast 12.7 | 8.1 |
| Average eps over ten years | 14.9 | 13.7 |
| CAPE | 245p/14.9p = 16.4 | 116p/13.7p = 8.5 |
Notice both the relative stability of earnings……….
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