P/E Ratio Variable Fluctuations May Yield The Same Results

by: Edgar Ambartsoumian

P/E ratios alone do not tell much about a company, especially if the end result stays the same due to price and earnings fluctuations at similar levels. (i.e. Old P/E = 24/3 = 8 New P/E = 32/4= 8 In this example, price and earning have moved up, but P/E end result stayed the same. Although it is useful to compare P/Es to their historical or industry levels, there are other metrics that are just as important to couple with price to earnings ratio: high gross margins, low price/free cash flow, and PEG ratios below 1.

Following small to mid-size companies in the services sector have demonstrated high gross margins above industry levels, robust growth potential with PEG ratios below 1, and relatively low price to free cash flows. These metrics allow me to filter companies in my top down analysis before making sound financial decisions.

Company Name Market Cap P/E Price/FCF Gross Margin PEG
Sotheby's (NYSE:BID) 2.15 B 11.53 6.85 89.53% 0.64
ChinaNet Online Holdings Inc. (NASDAQ:CNET) 18.79 M 1.93 3.23 63.34% 0.19
Almost Family Inc. (NASDAQ:AFAM) 141.30 M 6.28 5.80 52.16% 0.55
China Medical Technologies Inc. (CMED) 110.36 M 4.75 3.10 61.88% 0.23
Cablevision Systems Corp. (NYSE:CVC) 4.17 B 14.94 5.47 55.75% 0.92
Community Health Systems, Inc. (NYSE:CYH) 1.82 B 6.12 6.21 86.61% 0.48
Dice Holdings, Inc (NYSE:DHX) 507.09 M 18.17 8.26 92.80% 0.74

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Problem with this article? Please tell us. Disagree with this article? .