Tuesday, 27 April 2010

Prices of these counters have tripled or quadrupled over the last 1 year or so.

Let us look at the prices of glove companies.  Prices of these counters have tripled or quadrupled over the last 1 year or so.  These prices can be understood by looking at the components driving them:

Price = PE x Earnings
Price of stock (++++) = PE (+)  x Earnings (+++)
Price of stock (++++) = PE (+)  x  Sales (+)  x  Profit margin (++)

Envisage what will happen to the price of the stock should profit margins be halved.  This is not impossible, especially when the present build-up in capacity reached the stage where the gap between supply and demand is abolished.

Those holding glove stocks may wish to enjoy the ride for the moment.  

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