How To Interpret FAST Graphs™

Jan. 10, 2013 2:40 PM ET16 Comments
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Growth, Dividend Growth Investing, Value, Growth At A Reasonable Price

Contributor Since 2009

Charles (Chuck) C. Carnevale is the creator of FAST Graphs. He is also Co-Founder of The Dividend Kings, along with Brad Thomas and Adam Galas (Dividend Sensei), offering a premium service on Seeking Alpha's Market Place. Chuck is also Co-Founder of an investment management firm. He has been working in the securities industry since 1970: he has been a partner with a private NYSE member firm, the President of a NASD firm, Vice President and Regional Marketing Director for a major AMEX listed company, and an Associate Vice President and Investment Consulting Services Coordinator for a major NYSE member firm. Prior to forming his own investment firm, he was a partner in a 30-year-old established registered investment advisory in Tampa, Florida. Chuck holds a Bachelor of Science in Economics and Finance from the University of Tampa. Chuck is a sought-after public speaker who is very passionate about spreading the critical message of prudence in money management. Chuck is a Veteran of the Vietnam War and was awarded both the Bronze Star and the Vietnam Honor Medal.

FAST Graphs™ are a "tool to think with" and as such, have no agenda of their own. Instead, they are designed to provide "essential fundamentals at a glance" and allow the user to interpret the data according to their own philosophies, strategies and beliefs. In this context, FAST Graphs™ are the deliverer or reporter of important information.

Essentially, the FAST Graphs™ stock research tool provides investors many benefits, but there are four things they do very well.

1. They provide a historical review and instantaneous perspective of how well the business behind the stock has historically performed (the orange earnings justified valuation line).

2. They provide an instantaneous perspective of how the market has historically capitalized or priced the company's operating results or business performance (the blue normal PE ratio line).

3. They provide a precise consensus estimate of leading analysts' near term earnings expectations for a company's current fiscal year and next fiscal year followed by a five year earnings growth consensus estimate (estimated earnings and return calculator graph).

4. They provide the opportunity to override and therefore input the user's own estimates or expectations of the company's future prospects (override function is located on navigation bar).

Tool To Think With

FAST Graphs™ are a dynamic tool that calculates the company's changing growth rates each time a different time period is selected. Therefore, the user can determine such things as whether the company's earnings growth rates are accelerating, decelerating or staying the same, and see major inflection points, if any, with a company's business vividly revealed. This is a major component of the "tools to think with" aspect of this fundamental research tool.

Earnings & Price Correlation

FAST Graphs™ reveal the undeniable correlation and relationship between earnings and stock price on any publicly traded company. This "tool to think with" helps the user determine fair valuation; past, present and future, on any company being examined. Therefore, the user is empowered with the proper perspectives towards making sound buy, sell or hold investing decisions.

The Key

The key to running the FAST Graphs™ tool is the proper utilization of the light brown or tan vertical navigation bar to the left. This navigation bar is what drives the FAST Graphs™. We suggest clicking the drop-down menu box titled "Select Yrs" and running multiple graphs starting with a 15-year default graph and then shortening the graphs to, for example, a 10-year graph, followed by a 5-year graph, followed by a 2-year graph, etc. Any combinations of years, from as short as the last 2 years all the way out to the last 20 years, can be run.

A Dynamic Tool

When running multiple graphs you will notice that FAST Graphs™ is a dynamic tool that automatically calculates and recalculates growth rates and valuations. The most obvious advantage to running dynamic graphs over multiple time periods is to determine whether or not growth rates are accelerating, decelerating or staying the same. Consequently, it might also make sense to focus more on the most recent time frames such as the last five years, two years, etc.

Comprehensive Research More Efficiently

The FAST Graphs™ research tool is designed to help the user more efficiently conduct a comprehensive research effort. Just above the historical graph is a link to the company's website. This enables the researcher to access the company's financials, review any presentations they have provided, read news releases, etc.

Link to Company's Website/Google Finance/MSN Money

In addition to the link to the company's website on the top of the historical chart, there are three additional links in the tan navigation bar to the left of the graphs. Two of the links, "Summary" and "Quote" will take the user to Google Finance and MSN Money respectively. These links provide additional research that the user can quickly and easily examine.

Link to Zacks' Estimates

The final link at the bottom of the navigation bar "To Find Other Estimates or Symbols" takes the user to the MSN Money page where Zacks' earnings estimates can be reviewed. This provides the user a cross-check of the earnings estimates that can be compared to the Standard & Poor's Corp. Capital IQ that FAST Graphs™ defaults to.

The following screenshots depict all of the historical and forecasting graphics available with FAST Graphs™. Remember, the live fully functioning FAST Graphs™ are dynamic tools that can be utilized instantly and easily provide a comprehensive perspective of a stock, how its business has performed and how the market has value that performance over time.

Historical FAST Graphs™

The historical charts provide you historical information. This includes historical growth rates, normal P/E ratios, earnings per share, dividends, etc. In other words, they tell you what has happened and how the stock price has reacted to what has happened. Running multiple graphs allows you to determine whether earnings growth has accelerated, decelerated or stayed the same.

PE & Interest Rates and Sales & Price/Sales

Regarding the red graphs with the blue lines, the first one simply graphs interest rates for whatever time frame you are drawing, and either the year-end PE or year-end P/FFO, whichever is appropriate. If you point your curser at the top of the red area a pop-up will appear showing you what the interest rate on a 10-year treasury was on that date. If you put your mouse pointer on the dark blue squares on the dark blue line, the year-end PE or P/FFO will pop up.

In theory, there should be an inverse relationship between the blue line and the red shaded area. In other words, during normal times, as interest rates would rise, PE ratios would fall, and vice-versa. However, since the irrational exuberant period (1999-2001), there has been a direct relationship. As interest rates have fallen so have PEs. Nevertheless, the point of those graphs are to allow you to see what normal PE ratios (P/FFO) for the company have been, and whether or not interest rates had any effect.

The second graph is simply sales (the red shaded area) and price (the blue line) overlaid in order to determine the current and historical price to sales. This is an important valuation measurement that this graph reveals. When you point to the red shaded are, sales in millions and date will pop up. When you point to the blue line, the price to sales ratio will pop up. This graph helps you determine whether the company's current price to sale ratio is high, low or normal.

Performance Graph

The Performance graph calculates the performance of the stock over whatever time frame has been graphed. The dates that the performance is measured against are listed at the top of the graph. If the company pays dividends, a dividend cash flow table will be included. The performance is calculated as if the dividends were paid out and not reinvested. Therefore, you can see the entire performance that came from dividends, the entire performance that came from capital appreciation, and the total return combination of both.

Forecasting Graph

The Earnings and Price Return Calculator (forecasting charts) plot weekly closing prices, and the last plot is the previous day's close. The dark orange line is calculated using one of three formulas. Follow this link here to the definitions. However, once the PE valuation is calculated, the lighter orange lines above and below are drawn at the same slope, however, they are 10% increments above and below the dark orange line. Notice they are parallel. The scale to the right tells you what PE ratio each of the orange and blue lines on this graph represent. To be clear, if the price is touching one of those lines, then it is trading at the PE ratio that can be determined by the scale to the right. Again, assuming this stock is precisely touching one of those lines. If not, then you simply eyeball extrapolate between the two.

10-Year Earnings Yield Estimate (EYE Chart)

The EYE ratio chart and table, which stands for Earnings Yield Estimator, generates the table that translates the Estimated Earnings and Return Calculator graph into numbers. The table is based on whatever earnings estimate is found on the Estimated Earnings and Return Calculator. However, you do have the option of over-riding the earnings estimate to a higher or lower number according to your belief, and a new EYE table will be generated based on your over-ride. The basic idea is to mathematically determine whether or not an investment in a prospective company justifies you for the risk you are assuming based on the earnings yield.

The columns are color-coded in order to provide a quick perspective of certain relationships. When the column turns blue, this indicates that the cumulative dividend yield would now surpass the cumulative interest payments from the 10-year Treasury bond it is compared to in yellow.

Importantly, focus on the columns at the top of the table which tell you what you are looking at in each column. The brown cell in the Target Prc Est Tot Ret Column indicates the last price for the fiscal year and the rate of return it represents.

To summarize, the EYE ratio estimator simply puts the estimated earnings and return calculator picture into numbers and compares it to an equal investment in a 10-year Treasury bond.

(End of Article)

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