- Such a turnabout in the behavior of common stocks is by no means uncommon, but in the case of A. & P. it was more striking than most.
- In the years after 1949 the grocery chain’s shares rose with the general market
- until in 1961 the split-up stock (10 for 1) reached a high of 70 1⁄2 which was equivalent to 705 for the 1938 shares.
- Such a price/earnings ratio—which compares with 23 times for the DJIA in that year—must have implied expectations of a brilliant growth in earnings.
- This optimism had no justification in the company’s earnings record in the preceding years, and it proved completely wrong.
- Instead of advancing rapidly, the course of earnings in the ensuing period was generally downward.
- The year after the 70 1⁄2 high the price fell by more than half to 34.
- But this time the shares did not have the bargain quality that they showed at the low quotation in 1938.
- After varying sorts of fluctuations the price fell to another low of 211/2 in 1970 and 18 in 1972—having reported the first quarterly deficit in its history.
Ref: Intelligent Investor by Benjamin Graham