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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