RE:Why is RBX so low. PE is less than 10.
ernmes wrote:
PE ratio is over little over 9. Tis is better than many major companies.
Cash Flow last quarter was over $ Cash flow last quater was $.02 pers share. Yet imagine what the numbers will become when Ghana gets into production. The ozs per tons is much higher there. Also Robex will be procucing 3 times the ounces they are now.
Pay attention to the P/E ratio but keep in mind the market could be wrong about it.
A cyclical company may have a low P/E ratio at the top of the cycle but the market could be telling you that earnings could be soft in the future, hence the low P/E ratio. Some people buy into the low P/E ratio, then the following year, earnings take a beating as you'd expected and shares take a nosedive.
In my almost 20 years of investing I cannot tell you how many times this has happened to me. But, over time, you get better at recognizing these situations and you try to avoid them in the future.
One popular way to play cyclicals is to buy when the P/E ratio is negative or very high. This could tell you that you're at the bottom of the cycle and that a new bull market in earnings power is expected in the future. As earnings increases, the high P/E ratio may be justified even as the share price rises.
In this case, Robex resources has a low P/E ratio and one could argue we're in the early stages of a bull market for gold. A low P/E ratio with gold prices possibly rising higher in the future is a double whammy win for shareholders. you get the benefit of paying very little for each dollar of earnings they generate and an additional reward of seeing these earnings increase with time.
Your share price return is strongly correlated with the earnings yield on that investment plus the growth rate of those earnings over time.
Hence, an investment with a 10 times P/E ratio has a 10% earnings yield. If these earnings increase at just the rate of inflation, say 2%, then your expected return on the investment is approximately 10% + 2% = 12%
This type of return would beat the market over time and as I'm writing this, the earnings yield on the S&P 500 is just under 5%.