The Fool Ratio Prepared for the MII By Jason Chen and Bill Pappa

What is the Fool Ratio? Stock valuation tool Used for small and mid cap stocks Large-cap: Over $5 billion Mid-cap: $500 million to $5 billion Small-cap: $150 million to $500 million Micro-cap: Below $150 million P/E Ratio : Growth Rate

P/E Ratio? Sounds familiar... The relationship between price and earnings Caveats –Look at the industry! Example

Example of P/E Ratio Let's calculate the P/E for Bill’s Fries Your daily paper shows you Bill’s stock trading at $20 per share. Your broker informs you that last year the company earned $1.00 per share. The P/E ratio? $20 per share / $1 per share = 20 ?

The Growth Rate Compares estimated EPS with current EPS as a percentage Example

Bill’s Fries Current earnings = $.60 per share Estimate for next year = $.90 per share So what is the Growth Rate? ($ $0.60) x 100 = 50% $0.60

The PEG Ratio The Price-to-Earnings-to-Growth Ratio Example: P/E=20, Growth Rate=50 PEG Ratio = 20/50 =.4

Introducing the Pegulator PEGulator/YPEGulator

So What About the Fool Ratio? Simply correlates PE to growth rate.50 or less Buy.50 to.65 Look to buy.65 to 1.00 Watch (or "hold") 1.00 to 1.30 Look to sell 1.30 to 1.70 Consider shorting Over 1.70 Short

Limitations Small and mid-caps only Some industries don’t apply: –airlines, banks, brokerage houses, leasing companies, mortgage companies, oil drillers, and real-estate companies Negative Earnings Questions?

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