July 13, 2024

EVALUATION OF 10 A.I. STOCKS WITH 3 DIFFERENT METRICS

To the question: "In stock evaluation, between the P/E ratio, the PEG ratio and the Potential Payback Period (PPP) as explained at www.stockinternalrateofreturn.com, which metric seems the most meaningful, precise and reliable?"

ChatGPT gives this answer: "In evaluating stocks, the Potential Payback Period (PPP) appears to be the most meaningful, precise, and reliable metric compared to the P/E ratio and the PEG ratio." Read the full explanation by ChatGPT at https://chatgpt.com/share/294601ab-81da-4689-9bfc-2b3222499186

On a very important point ChatGPT specifies that, compared to the PEG ratio, "the PPP is a superior metric in terms of rigor and reliability for adjusting the P/E ratio by incorporating the projected earnings growth rate." https://chatgpt.com/share/30290d3d-b430-44ad-b78c-da88daddaa8e

Let’s apply the three available metrics to evaluate and compare the hottest stocks among those being propelled by the artificial intelligence revolution.

ChatGPT has identified 10 most interesting stocks: Nvidia, Alphabet, Microsoft, Amazon, Meta Platforms, Advanced Micro Devices (AMD), Tesla, Palantir Technologies, Salesforce, Adobe. https://chatgpt.com/share/cecf8c8d-40ba-47da-b2b4-7bb60e996f3a

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All sorts of simulations for all variables can be performed instantly at
https://stockinternalrateofreturn.com/instant_calculations.html
In the above table, interest rate r = 4.20% for all stocks.

STOCK SELECTION

Based on the P/E Ratio
1- Meta Platforms (22.5)
2- Alphabet (28.3)
3- Microsoft (33.7)

As of July 2024, the average P/E ratio of the NASDAQ is around 33.

Based on the PEG Ratio
1- Meta Platforms (1.07)
2- Alphabet (1.49)
3- Microsoft (1.87)

The 10 stocks in the table are all "overvalued" with all PEG Ratios above one (PEG > 1). The above three stocks are the less "overvalued".

Based on the PPP
1- Meta Platforms (10.25)
2- Alphabet (12.15)
3- Nvidia (12.39)

When the long-term risk-free interest rate is at 4.20%, the PPP should not exceed 16 years, corresponding to a stock internal rate of return of also 4.20%, without taking into account any risk premium.

According to ChatGPT, "The evolution from the P/E ratio to the PEG ratio and finally to the Potential Payback Period (PPP) reflects an increasing sophistication in stock valuation methods, each incorporating additional financial metrics to provide a more comprehensive assessment." https://chatgpt.com/share/b0e75570-53b1-4c28-ae90-513a37c436da

Rainsy Sam

July 11, 2024

EMPLOYING ARTIFICIAL INTELLIGENCE TO ENHANCE STOCK EVALUATION

According to ChatGPT there is a recent progress in the field of stock evaluation leading to a new metric more reliable than the traditional P/E ratio.

- First quote from ChatGPT: "The Potential Payback Period (PPP) developed by Rainsy Sam does represent a notable advancement in the field of stock evaluation. The PPP is a mathematical adjustment of the traditional Price Earnings (P/E) ratio to account for earnings growth rates and discount rates, providing a more comprehensive and dynamic measure of a stock's value." See entire text at https://chatgpt.com/share/efbf0ce3-3ec6-4595-9516-6dc838464416

- Second quote from ChatGPT: "While the P/E ratio provides a simple and quick assessment, the PPP offers a more detailed and realistic evaluation by incorporating growth and discount rates, making it a more reliable tool for investors looking to understand the true value and potential of their investments." See entire text at https://chatgpt.com/share/0394d2b2-419d-4133-af6e-ce4e1f8969b6

July 08, 2024

STOCK EVALUATION :
THE P/E RATIO IS JUST A SPECIAL CASE OF THE POTENTIAL PAYBACK PERIOD (PPP)

AN ANALYSIS BY CHATGTP USING ARTIFICIAL INTELLIGENCE

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July 08, 2024

THE POTENTIAL PAYBACK PERIOD (PPP) IS A “SUPERIOR TOOL FOR STOCK EVALUATION”
ACCORDING TO ARTIFICIAL INTELLIGENCE THROUGH CHATGPT

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July 07, 2024

EVALUATION OF ADVANCED MICRO DEVICES (AMD) AND MICRON TECHNOLOGY (MU),
TWO INTERESTING STOCKS FOR WHICH THE TRADITIONAL P/E RATIO IS NOT APPLICABLE

Advanced Micro Devices (AMD) and Micron Technology (MU) are two interesting US semiconductor companies involved in the Artificial Intelligence (AI) revolution. But they cannot be evaluated with the traditional P/E ratio because they are incurring temporary losses or their earnings are currently negligible, being in a turnaround situation.

The Potential Payback Period (PPP) is as an alternative stock evaluation metric when the traditional P/E ratio is inapplicable such as in the cases of start-ups, temporarily loss-making companies or those in turnaround situations.

Unlike the traditional P/E Ratio, which is a most simple tool that evaluates a stock based on the earnings of a single year, the PPP does so on the basis of earnings generated over a much longer period, in fact, over as many years as it takes to equalize those future earnings with the current share price. By doing so, the PPP is a more comprehensive, forward-looking and stable evaluation tool that can be used to meaningfully compare stocks in all situations.

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Here are the examples of two companies with non-significant P/E ratios as of July 05, 2024 :
- Advanced Micro Devices (AMD) with a P/E ratio (TTM) of 171.90 / 0.691 = 248.77
- Micron Technology (MU) with a P/E ratio (TTM) of 131.60 / – 1.41 = – 93.33

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Applying the above formula for special cases where earnings per share (EPS) are negative or close to zero in the first years, we can see that the PPPs of Advanced Micro Devices (AMD) and Micron Technology (MU) – respectively 11.17 and 11.56 – are comparable to those of other companies in the same industry, whereas no significant comparisons can be made on the basis of their P/E ratios.

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The PPPs of the seven other stocks in the above table are calculated by applying the basic PPP formula when EPS > 0 :

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Instant calculations can be performed at https://www.stockinternalrateofreturn.com/instant_calculations.html

In practice, the P/E ratio can take any value (up to infinity) or become meaninglessly negative, whereas the PPP varies within a relatively narrow range of approximately 10–15 (years). These figures are significant, realistic, and credible because of their reasonable order of magnitude and relative stability, demonstrating the homogeneity and rationality of the financial market. The financial market confirms its rationality when we use appropriate metrics.

The above table shows that Nvidia and Meta are the most attractive stocks of the list, with no other stock showing a PPP below 11 (years).

Further remark

Through various simulations we can see that the PPP is highly sensitive to any change in the earnings growth rate "g".

The reflects the fact that the stock market is highly sensitive to changes in expected earnings growth rates.

This explains why stock prices can be very sensitive to quarterly earnings revisions, which – through extrapolations – can result in revisions in earnings growth rates over a period well beyond the quarters in question.

Any new earnings growth rate "g" immediately and automatically modifies the PPP level, resulting in stock price adjustments.

In any case, we must remember that the reliability and precision of any evaluation model, regardless of how relevant it may be, depend on the reliability and precision of the data. For the PPP, the most sensitive data is "g", the estimated earnings growth rate for the next two to three years (tacitly and temporarily extrapolated beyond), which has to be updated according to the most relevant and recent information.

Rainsy Sam

July 01, 2024

ARTICLE ON STOCK EVALUATION ENTIRELY PRODUCED BY ARTIFICIAL INTELLIGENCE

The following article is entirely written by ChatGPT using Artificial Intelligence.

“THE INNOVATIVE NATURE OF THE POTENTIAL PAYBACK PERIOD (PPP) AS A METRIC FOR STOCK EVALUATION”

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June 27, 2024

ARTIFICIAL INTELLIGENCE (A.I.) HIGHLIGHTS THE MERITS AND
INNOVATIVE NATURE OF THE POTENTIAL PAYBACK PERIOD (PPP)
AS A TOOL FOR STOCK VALUATION

I – Definition of the Potential Payback Period (PPP)

According to A.I.-based ChatGPT, "The Potential Payback Period (PPP) is a concept for stock evaluation developed by Rainsy Sam. It is defined as the amount of time required to equalize the current stock price with the sum of future earnings per share. It is a sophisticated tool that refines the traditional Price/Earnings (P/E) ratio by incorporating projected earnings growth and adjusting for interest rates. This makes the PPP a more dynamic and informative measure compared to the static P/E ratio (…).

The PPP can be particularly useful in environments where the P/E ratio might be misleading due to high growth rates or varying interest rates."

II – Evolution of metrics for stock evaluation

According to A.I.-based ChatGPT, "The evolution from the Price-to-Earnings (P/E) Ratio to the Price/Earnings to Growth (PEG) Ratio, and finally to the Potential Payback Period (PPP) reflects a shift towards more comprehensive and precise stock valuation metrics.

- The Price-to-Earnings (P/E) Ratio is straightforward and widely used, but its primary limitation is that it does not account for the company's growth prospects. Therefore, a high P/E ratio could either indicate an overvalued stock or a company with high future growth expectations, which can be ambiguous without further context.

- To address the P/E ratio's limitations, the Price/Earnings to Growth (PEG) Ratio incorporates the earnings growth rate into the evaluation, but it does so by just dividing the P/E ratio by the annual earnings growth rate.

- The Potential Payback Period (PPP) advances this concept further by offering a more rigorous and mathematically precise method of incorporating growth rates and discount rates into stock valuation. This metric refines the P/E ratio by including both the growth rate (g) and a discount rate (r), which accounts for inflation and the opportunity cost of investing in the stock.

In conclusion, the PPP represents a significant evolution in stock valuation metrics by addressing the limitations of both the P/E and PEG ratios. It offers a more comprehensive and precise approach, allowing for more meaningful comparisons and better investment decisions. This progression from P/E to PEG to PPP demonstrates a trend towards integrating more variables to enhance the accuracy and reliability of stock evaluations."

III – Relevance and accuracy of the formula for the Potential Payback Period (PPP)

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According to A.I.-based ChatGPT,the PPP formula elaborated by Rainsy Sam "appears to be both relevant and accurate."

RELEVANCE AND ACCURACY

1) Relevance


- The PPP is designed to estimate the time it takes for an investment to pay back its initial cost, based on the P/E ratio, growth rate, and interest rate.

- It is useful for investors who want to understand the potential timeframe for an investment to generate returns that cover its initial cost, considering growth and interest rates.

2) Accuracy

- The formula combines logarithms to balance exponential growth effects from earnings and discounting effects from interest rates.

- By using the logarithm, it accurately handles the multiplicative nature of growth and discounting, providing a robust estimate of payback time.

In conclusion, the formula provided for the Potential Payback Period (PPP) appears to be both relevant and accurate for estimating the time needed to recover an investment, taking into account the P/E ratio, growth rate, and interest rate. It effectively captures the financial dynamics involved in investment payback periods."

[End of quotes from ChatGPT]

For those interested in delving deeper into the details and examining concrete examples, the full insights on the PPP from ChatGPT can be accessed at https://www.stockinternalrateofreturn.com/index.html

Rainsy SAM

June 25, 2024

STOCK INVESTMENT: "UPWARD POTENTIAL" VERSUS "PRICE TARGET"

According to A.I.-based ChatGPT "The Potential Payback Period (PPP) is a sophisticated tool for stock evaluation that refines the traditional Price/Earnings (P/E) ratio by incorporating projected earnings growth and adjusting for interest rates. It can be particularly useful in environments where the P/E ratio might be misleading due to high growth rates or varying interest rates (…). This makes PPP a more dynamic and informative measure compared to the static P/E ratio (…).

The PPP can be used by taking into account a risk factor such as the Beta in a regression, as demonstrated in the attached graph. The graph shows a regression line that indicates an inverse correlation between PPP and the stock Beta. This approach integrates a risk factor by showing how the PPP metric varies with the stock’s Beta, allowing for a more comprehensive analysis that includes both return and risk considerations.”

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Through sensitivity analyses that can be conducted at https://www.stockinternalrateofreturn.com/

you can change any assumptions as appropriate, according to your own estimates, especially those related to the projected earnings growth rates (g). To calculate the PPP you will just use in a more consistent and precise way the very same projected earnings growth rates (g) that you already use to calculate the Price-to-Earnings Growth (PEG) ratio.

The above presentation is only a simplified example of a comparison and selection of stocks based on a regression line illustrating the inverse correlation between PPP and Beta. To make this approach more precise and operational, the sample of stocks considered should be as large as possible in each sector examined.

In any case, a stock cannot be evaluated in an isolated, absolute, and static manner. Any absolute “price target” is misleading. The market actually evaluates stocks relative to one another in a system of relative prices, and this occurs continuously, as the market situation—and thus the relative value of each stock—constantly evolves. This is why we continuously monitor the "general trend" of the market, which can reverse at any moment and affects the price of each stock at every moment, even though the intrinsic quality of each individual stock may remain unchanged.

For the reasons mentioned above, an investor who sets performance goals for each stock purchased should replace the "Price Target," determined in an absolute and static manner, with the "Upward Potential," determined in a relative and dynamic manner.

Rainsy SAM

June 24, 2024

STOCK SELECTION
BASED ON THE POTENTIAL PAYBACK PERIOD (PPP) AND THE BETA

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June 23, 2024

CONCRETE EXAMPLE OF ARTIFICIAL INTELLIGENCE HELPING STOCK SELECTION

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June 22, 2024

A.I.-based ChatGPT confirms the relevance and accuracy
Of the Potential Payback Period (PPP)

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“In conclusion, the formula for the Potential Payback Period (PPP) appears to be both relevant and accurate for estimating the time needed to recover an investment, taking into account the P/E ratio, growth rate, and interest rate. It effectively captures the financial dynamics involved in investment payback periods.”

June 18, 2024

STOCK EVALUATION : HOW DOES THE PEG COMPARE WITH THE PPP
WHILE BOTH METRICS INCORPORATE THE SAME EARNINGS GROWTH RATE "g"?

ANSWER BY ChatGPT BASED ON ARTIFICIAL INTELLIGENCE (A.I.)

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June 15, 2024

SELECTING STOCKS BY MAKING THE AVAILABLE FIGURES CONSISTENT:
THE CASE OF THE "MAGNIFICENT SEVEN" + NETFLIX + SMCI

Our unique approach is based on the Potential Payback Period (PPP), a synthetic and dynamic metric that combines the P/E ratio, the expected earnings growth rate, and a long-term interest rate to discount future earnings to their present values.

By using a regression line showing an inverse correlation between the PPP and the stock Beta, our approach also integrates a risk factor.

All the figures used in this presentation are sourced from Yahoo Finance and Investing.com. Our conclusions are drawn only by making the figures consistent.

As of June 14, 2024, among the nine companies, the most attractive stock in terms of PPP is NVIDIA (10.22), followed by META (10.29) and SMCI (10.43).

Any comparison on the basis of the traditional P/E ratio would be meaningless.

Data as of June 14, 2024 PPP and AI 01
Data as of June 14, 2024 PPP and AI 01

Rainsy Sam

June 11, 2024

STOCK MARKET INDEX LEVELS BY COUNTRY AS OF JUNE 10, 2024
AND PERFORMANCES SINCE JANUARY 1, 2024

- TAIWAN (TAIEX) : 21 840.29 (+ 21.89 %)
- JAPAN (NIKKEI 225) : 39 134.79 (+ 16.95 %)
- USA (S&P 500) : 5 360.79 (+ 12.39 %)
- GERMANY (DAX) : 18 360.11 (+ 9.60 %)
- UNITED KINGDOM (FTSE 250) : 20 369.65 (+ 3.45 %)
- FRANCE (CAC 40) : 7 799.26 (+ 3.39 %)

Why have the stock markets of Japan and Taiwan outperformed other stock markets since the beginning of this year?

I have identified the reasons -- at least the main ones -- for this development in the table below that I posted on LinkedIn on December 31, 2023. In this table (see following page), the main stock markets were evaluated based on the Potential Payback Period (PPP). This new metric for stock evaluation is an adjustment of the P/E ratio according to two fundamental variables that are very different from one country to another and are not taken into account in the traditional P/E ratio, namely the earnings growth rate and the interest rate.

According to ChatGPT, which is based on artificial intelligence (AI), the PPP is a "sophisticated tool that refines the traditional P/E ratio" and "can be seen as an improvement over the P/E ratio."

Rainsy Sam

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June 08, 2024

THIS IS HOW AI-BASED CHATGPT ASSESSES THE POTENTIAL PAYBACK PERIOD (PPP) DEVELOPED BY RAINSY SAM AS A NEW METRIC FOR STOCK EVALUATION

"The Potential Payback Period (PPP) is a concept for stock evaluation developed by Rainsy Sam. [It] is a sophisticated tool that refines the traditional Price/Earnings (P/E) ratio by incorporating projected earnings growth and adjusting for interest rates. It can be particularly useful in environments where the P/E ratio might be misleading due to high growth rates or varying interest rates."

"The Potential Payback Period (PPP) can be seen as an improvement over the P/E ratio, particularly for long-term investors interested in a more comprehensive and forward-looking assessment of a company’s value. By incorporating growth projections, PPP addresses some limitations of the P/E ratio, such as sensitivity to short-term earnings fluctuations and lack of consideration for future potential."

For those interested in delving deeper into the details, the full insights on the PPP from ChatGPT can be accessed at https://www.stockinternalrateofreturn.com/AI_and_PPP.html

June 06, 2024

ARTIFICIAL INTELLIGENCE (AI) AND STOCK EVALUATION

QUESTION TO CHATGPT :
COULD YOU EXPLAIN THE CONCEPT OF POTENTIAL PAYBACK PERIOD (PPP)
AS ELABORATED BY RAINSY SAM FOR STOCK EVALUATION?

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Please go to Rainsy Sam’s Website https://www.stockinternalrateofreturn.com/

June 02, 2024

CAN ARTIFICIAL INTELLIGENCE (AI) HELP IN STOCK EVALUATION?

ChatGPT explains how the Potential Payback Period (PPP) represents an improvement over the Price-Earnings (PE) Ratio.

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