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.)

PPP and AI 01
PPP and AI 01 PPP and AI 01
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

PPP and AI 01 PPP and AI 01
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?
PPP and AI 01 PPP and AI 01

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.

PPP and AI 01 PPP and AI 01
April 19, 2024

WHICH METRIC IS THE MOST RELEVANT ?

CONFLICTING CONCLUSIONS FROM THREE DIFFERENT METRICS :
THE P/E RATIO, THE PRICE/EARNINGS-TO-GROWTH (PEG) RATIO,
AND THE POTENTIAL PAYBACK PERIOD (PPP) OR “DYNAMIC P/E RATIO”

EXAMPLES OF THE “MAGNIFICENT SEVEN” + NETFLIX

Data as of April 17, 2024
Fundamental data (especially P/E Ratios and Earnings growth rates) are from Yahoo Finance exclusively, so as to check their consistency. https://finance.yahoo.com/

“r” = Interest rate used as discount rate = 4.585 % (Yield on the US 10-year Treasury note)
EPS = Earnings per share (Trailing Twelve Months)
P/E Ratio = Price/Earnings Ratio = PER
“g” = Earnings growth rate estimate (“Next 5 Years per annum”)
PEG = Price/Earnings-to-Growth Ratio
peg = per / g PPP = Potential Payback Period or “Dynamic P/E Ratio” Image 2 Instant calculations at https://www.stockinternalrateofreturn.com/instant_calculations.html

peg = per / g

Conflicting conclusions based on the three different metrics (PER, PEG and PPP): Figures indicating relative overvaluation are in red, undervaluation in green, and fair valuation in brown. The PPP proves to be most relevant in light of the 1-Year Change in stock prices.

Rainsy Sam

April 17, 2024

WALL STREET : END IN VIEW OF THE BULL MARKET

As written in my latest post on LINKEDIN “Elaborating a Dynamic P/E Ratio” (April 11, 2024) https://www.linkedin.com/feed/update/urn:li:activity:7184191806899671040/

“The stock market is highly sensitive to any change in the expected earnings growth rate. It is not the growth rate itself or the speed (concept of "first derivative" in physics) that matters most, but its acceleration or deceleration (concept of "second derivative")”.

From this perspective, the "good" is still ahead of us, but the "better" is already behind us.

The Potential Payback Period (PPP), which is a kind of “Dynamic P/E Ratio”, is very sensitive to the earnings growth rate "g" in the formula

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The latest figures for “g” indicate that the New York Stock Market as valued with the PPP, is getting relatively more and more expensive and that the end of the Bull Market is in view.

Rainsy Sam

April 05, 2024

STOCK COMPARISON USING THE “DYNAMIC P/E RATIO” AS A NEW METRIC
THE CASES OF MICRO TECHNOLOGY (MU) AND NVIDIA (NVDA)

In the semiconductor and artificial intelligence sectors, how can we compare a temporarily loss-making company such as Micron Technology (MU) with one of the “Magnificent Seven” such as Nvidia (NVDA)?

Investors often find themselves needing to evaluate companies for which the traditional P/E ratio cannot be meaningfully calculated, at least temporarily, when losses are incurred or earnings are near zero. This is particularly true for startups or companies in a turnaround situation, or those undergoing restructuring.

This is where the concept of "Potential Payback Period" (PPP) proves useful.

The PPP is defined as the period of time necessary for the sum of future earnings per share to equalize the current share price. Future earnings are discounted to their present values to reflect inflation or opportunity cost.

Unlike the traditional P/E ratio, which measures the value or "expensiveness" of the stock based on the earnings of a single year, the PPP does so on the basis of earnings generated over a much longer period of time, in fact over as many years as it takes to equalize those future earnings with the current share price.

Initially, the two concepts are quite similar. For example, a P/E ratio of 10 means it takes 10 years of earnings per share to equalize or “potentially recover" the current stock price. However, this assumes no earnings growth and no inflation over the years. In this case, P/E ratio = PPP, meaning the P/E ratio is the PPP applied to a static world where there is no growth and no inflation, and it is also expressed in years, like any "period."

For more realistic cases, the PPP adjusts the P/E ratio by introducing an earnings growth rate and an interest rate used to discount future profits. This discount rate reflects inflation, but also an opportunity cost, as the investor buying a stock forgoes the return offered by a less risky long-term bond.

Finally, the PPP appears as a generalization of the P/E ratio with possibilities to take into account various and varying earnings growth rates and interest rates. Professor Emeritus of Finance at ESSEC (a top French business school) Patrice Poncet considers the PPP to be a "nice generalization of the P/E ratio" and that it represents an “undeniable improvement” in financial analysis.

If the P/E ratio is a snapshot based on earnings for a single year, the PPP is a video that captures the evolution of these earnings in real terms over a more extended period, defined as the time required ("period") for the discounted future earnings flow to equal the current stock price. For this reason the PPP can also be called “Dynamic P/E Ratio”.

The PPP is, in fact, a metric of a company’s profit-making capacity (or earnings potential), knowing that it is this anticipated profit-making capacity over the medium and long term that basically determines the share’s value in the stock market.

The advantages of the PPP are presented in detail at https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html

To calculate the PPP for Micron Technology and Nvidia we use the following formula:

Image 29
Mathematical demonstrations at https://www.stockinternalrateofreturn.com/Mathematics.html

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Share price and interest rate as of April 4, 2024 (Interest rate r = 4.308%).

Instant calculations of the PPP with all possible simulations can be performed at https://www.stockinternalrateofreturn.com/instant_calculations.html

In conclusion, Micron Technology currently presents a PPP (or profit-making capacity) similar to that of Nvidia (around 11.40 years of future earnings to potentially recover the current share prices), but the former stock is riskier than the latter, with more earnings volatility in the past and less visibility in the future.

Rainsy Sam

April 02, 2024

UPDATE ON MICRON TECHNOLOGY (MU, SEMICONDUCTOR INDUSTRY, NASDAQ)

Micron Technology, Inc. designs, develops, manufactures, and sells memory and storage products worldwide.

On December 25, 2023 we posted the following analysis :

Image 29

https://www.linkedin.com/feed/update/urn:li:activity:7144960074296279040/

From December 21, 2023 to April 1, 2024, Micron Technology increased from $85.48 to $124.29 (+45.40%) while Intel Corp. decreased from $47.08 to $44.47 (– 5.54%).

Image 29

You can perform instant calculations of the PPP with all possible simulations at https://www.stockinternalrateofreturn.com/instant_calculations.html

While the P/E Ratio is still not applicable in the case of the two temporarily loss-making companies, Intel Corporation and Micron Technology, the latter is still relatively attractive in the semiconductor / Artificial Intelligence industry, with a PPP of only 10.86.

If you want any stocks you hold to be freely evaluated on the basis of the PPP, just send us their names. You will quickly receive the corresponding analyses with relevant comparisons.

March 31, 2024

ANOTHER EXAMPLE OF A NOTABLY UNDERVALUED STOCK
IN TERMS OF POTENTIAL PAYBACK PERIOD (PPP)
ACM RESEARCH (ACMR, SEMICONDUCTOR INDUSTRY, NASDAQ)

ACM Research, Inc., together with its subsidiaries, develops, manufactures, and sells single-wafer wet cleaning equipment for enhancing the manufacturing process and yield for integrated chips worldwide.

https://finance.yahoo.com/quote/ACMR?.tsrc=fin-srch

Data as of March 28, 2024
Price and Earnings per share (EPS) in US$

Image 29

The Potential Payback Period (PPP) is a mathematical adjustment of the Price Earnings (PE) Ratio according to the earnings growth rate and the interest rate.

Image 29

Instant calculations of the PPP with all possible simulations at https://www.stockinternalrateofreturn.com/instant_calculations.html

The PPP is a synthetic metric because it combines three variables that are essential in stock evaluation, namely the PE ratio, the expected earnings growth rate, and the prevailing interest rate. It’s also a dynamic metric because, contrary to the static PE Ratio, it incorporates the earnings of several years to come through an estimated earnings growth rate.

If you want any stocks you hold to be freely evaluated on the basis of the PPP, just send us their names. You will quickly receive the corresponding analyses with relevant comparisons.

March 28, 2024

EXAMPLE OF A NOTABLY UNDERVALUED STOCK
IN TERMS OF POTENTIAL PAYBACK PERIOD (PPP)
TRAVELZOO (TZOO, NASDAQ)

Travelzoo, together with its subsidiaries, operates as an Internet media company that engages in the provision of travel, entertainment, and local deals from travel and entertainment companies, and local businesses worldwide.

https://www.investing.com/equities/travelzoo

Data as of March 27, 2024
Price and Earnings per share (EPS) in US$

Image 29

The Potential Payback Period (PPP) is a mathematical adjustment of the Price Earnings (PE) Ratio according to the earnings growth rate and the interest rate.

Image 29

The average PPP of the companies included in the S&P 500 amounts to 13.59.

Instant calculations of the PPP with all possible simulations at https://www.stockinternalrateofreturn.com/instant_calculations.html

If you want any stocks you hold to be freely evaluated on the basis of the PPP, just send us their names. You will quickly receive the corresponding analyses with relevant comparisons.

March 24, 2024

ALL METRICS, EXCEPT ONE, SUGGEST THAT WALL STREET IS OVERVALUED

(All data here are related to the S&P 500 index and are as recent as March 22, 2024)

1- PE RATIO: 28.41

Mean: 16.06
Median: 15.00
Min: 5.31 (Dec 1917)
Max: 123.73 (May 2009)
Source: https://www.multpl.com/s-p-500-pe-ratio

2- EARNINGS YIELD: 3.52% (compared to Yield on US 10Y Treasury Note: 4.199%)
Mean: 7.25%
Median: 6.67%
Min: 0.81% (May 2009)
Max: 18.82% (Dec 1917)
Source: https://www.multpl.com/s-p-500-earnings-yield

3- PRICE-TO-EARNINGS GROWTH (PEG) RATIO: 1.51
PE = 28.41
Earnings growth rate: + 18.8%
28.41 / 18.8 = 1.51 > 1.0, indicating overvaluation.
Source for Earnings growth rate: https://lipperalpha.refinitiv.com/2024/02/sp-500-long-term-eps-growth-forecasts-reach-multi-year-high/

4- SHILLER PE RATIO OR CYCLICALLY ADJUSTED PE (CAPE) RATIO: 35.0
Mean: 17.10
Median: 15.97
Min: 4.78 (Dec 1920)
Max: 44.19 (Dec 1999)
https://www.multpl.com/shiller-pe

The Shiller PE Ratio created by Yale University Professor Robert Shiller – who received the Economics Nobel Prize in 2013 – is approaching a level that indicates a possible market crash. This metric is a variation of the traditional PE ratio that uses the ten-year average of inflation-adjusted earnings instead of single-year earnings. It helps assess whether the stock market – as represented by the S&P 500 – is overvalued or undervalued. The higher the ratio, the more overvalued a market. Over more than 100 years, the average and median Shiller P/E Ratio has been around 16 or 17, spiking up significantly higher often before market crashes.

It reached an all-time high in December 1999 at 44.19. Based in part on that record high ratio, Shiller correctly predicted the market crash that occurred at the beginning of year 2000.

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At 35.00 the Shiller P/E Ratio is alarmingly high. “(But) like many other metrics, (it) is backward-looking, based on historical performance figures, leading some critics to question its utility as the economy and countries’ economic policies (and companies’ financial prospects) evolve.” https://www.forbes.com/advisor/investing/shiller-pe-ratio/

5- POTENTIAL PAYBACK PERIOD (PPP): 12.24

The Potential Payback Period (PPP) is a mathematical adjustment of the traditional Price Earnings (P/E) Ratio to incorporate the earnings growth rate and the interest rate in the stock evaluation process.

Image 29

As of March 22, 2024

- PER = 28.41
- g = + 18.8% (Source: As indicated for the calculation of the PEG Ratio at Point 3)
- r = 4.199% (Source: https://tradingeconomics.com/bonds)
- PPP = 12.24

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

Based on comparisons in time and space, a PPP of 12.24 is very reasonable and leaves ample room for further increase of the S&P 500 index. The forward-looking PPP – which is a kind of dynamic P/E Ratio – is the only metric to take into account the improving earnings prospects for US companies. See upward revisions of earnings growth rates at https://www.linkedin.com/feed/update/urn:li:activity:7169639808984678400/

Rainsy Sam

March 22, 2024

FOUR ATTRACTIVE SMALLER FRENCH COMPANIES
ON THE BASIS OF THE POTENTIAL PAYBACK PERIOD (PPP)

Data as of March 22, 2024
Price and EPS in Euros
g : Earnings growth rate per annum
r : Interest rate = 2.80%

Image 29

The Potential Payback Period (PPP) is a mathematical adjustment of the Price Earnings (P/E) Ratio according to the earnings growth rate and the interest rate.

Image 29

The average PPP for the French stock market currently exceeds 14.00.

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

If you want any stocks you hold to be freely evaluated on the basis of the PPP, just send us their names. You will quickly receive the corresponding analyses with relevant comparisons.

March 21, 2024

AIRBUS (aeronautics) and SAFRAN (aerospace and defense)
ARE TWO ATTRACTIVE FRENCH COMPANIES
ON THE BASIS OF THE POTENTIAL PAYBACK PERIOD (PPP)

Data as of March 21, 2024
Price and EPS in Euros

Image 29

The Potential Payback Period (PPP) is a mathematical adjustment of the Price Earnings (P/E) Ratio according to the earnings growth rate and the interest rate.

Image 29

The average PPP for the French stock market currently exceeds 14.00.

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

If you want any stocks you hold to be freely evaluated on the basis of the PPP, just send us their names. You will quickly receive the corresponding analyses with relevant comparisons.

March 19, 2024

THREE POSSIBLE METRICS FOR STOCK EVALUATION
THE CASE OF NVIDIA

The three possible metrics are
1) The traditional Price-to-Earnings Ratio (PER)
2) The Price-to-Earnings Growth (PEG) Ratio

Image 28

3) The Potential Payback Period (PPP)

Image 29

On April 25, 2023, the well-known investor Peter Lynch -- who popularized the PEG in the 1980s –
“expressed regret for not buying into NVIDIA,” probably because he found the stock overvalued on the basis of the PEG.

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On October 7, 2023, I made the following recommendation on NVIDIA :

Image 29

On February 2, 2024, I further explained my opinion by comparing the “Magnificent Seven” stocks on the basis of their PPPs. NVIDIA appeared as the most attractive stock with the lowest PPP (10.04).

Image 29

Evaluation of NVIDIA using the three metrics as of February 2, 2024.
The three metrics yield three different conclusions:

1) P/E Ratio = 86.94. The stock is markedly OVERVALUED.
2) PEG = 86.94 / 50 = 1.74 ( > 1). The stock is still OVERVALUED.
3) PPP = 10.04. The stock is UNDERVALUED.

In his book "One up on Wall Street" published in 1989, Peter Lynch wrote: "The P/E ratio of any company that's fairly priced will equal its (earnings) growth rate", meaning a fairly valued company will have its PEG equal to 1. If this metric shows a figure higher than 1, the company is considered “overvalued.”

The earnings growth rate must be closely followed and immediately rectified whenever applicable.

Rainsy Sam

March 13, 2024

INVESTORS SHOULD KEEP NVIDIA AND SUPER MICRO COMPUTER (SMCI)

- Last week, on March 6, 2024, I posted "NVIDIA and SMCI are the two best artificial intelligence stocks" and I urged investors to use "The Potential Payback Period (PPP): A unique tool for stock selection." https://www.linkedin.com/feed/update/urn:li:activity:7171291486553104384/

- On February 17, 2024, using the PPP approach, I pointed to the main "US stocks that will most benefit from the AI revolution".

Image 2

https://www.linkedin.com/feed/update/urn:li:activity:7164769504101658624/

- On February 11, 2024, I posted " (Based on the PPP) SMCI is the second most attractive AI stock". https://www.linkedin.com/feed/update/urn:li:activity:7162484219326222336/

- On February 7, 2024, I posted "Another earnings simulation leads to new price target for NVIDIA : $1,200." Without any downward revisions in earnings estimates, investors should wait for this price target to be reached this year. https://www.linkedin.com/feed/update/urn:li:activity:7160979050881052673/

- On October 7, 2023, I posted " NVIDIA: A strong buy on the basis of the PPP. Among the US major high-growth stocks NVIDIA is the most attractive in terms of PPP, even though with the highest P/E ratio”. NVIDIA share price was then $457.62. A 100% increase since. https://www.linkedin.com/feed/update/urn:li:activity:7116790087434035200/

See all my recent articles at https://www.stockinternalrateofreturn.com/latest_articles.html

Rainsy Sam

March 13, 2024

FRENCH-BASED CGG, A MOST INTRIGUING BUT INTERESTING COMPANY

The company stock is the “most expensive” and, at the same time, the “cheapest” in the world. The “most expensive” in that its P/E ratio is equal to infinity (with the company currently achieving 0 profit), the “cheapest” in that its price does not exceed 1 dollar (or 1 euro). However, the stock could prove to be a very interesting investment.

French-based CGG (formally Compagnie Générale de Géophysique – Veritas) provides data, products and services in Earth science, data science, sensing and monitoring for a wide range of industries and activities ranging from geologic studies to seismic surveys to natural resources exploitation to infrastructure construction to energy transition.

Image 2

Because the P/E ratio amounting to infinity is not applicable here, we need to use the concept of the Potential Payback Period (PPP) as explained in the article titled “How to evaluate stocks when the P/E ratio becomes irrelevant in the cases of startups and turnaround situations (when EPS < 0 or EPS ≃ 0)” https://www.stockinternalrateofreturn.com/Startups.html

The PPP is a mathematical adjustment of the P/E ratio according to the varying earnings growth rate and interest rate. If we consider the P/E ratio as a snapshot that is frozen on the profit of a single year, the PPP can be compared to a video that captures the flow of profits over a large number of years (as many years as it takes to equalize this future profit flow with the current stock price). Unlike the P/E ratio, which can lose all meaning for certain stocks during certain periods, the PPP is a synthetic and dynamic – more logical and more stable – metric that remains always meaningful in space and time and can always be used for stock comparison.

Image 2

Price as of March 12, 2014
EPS = Earnings per share
g = Expected earnings growth rate per annum after 2025
r = Long-term and risk-free interest rate
PPP = Potential Payback Period
Instant calculations of the PPP at https://www.stockinternalrateofreturn.com/instant_calculations.html

Considering CGG’s field of activities, a PPP – which is a kind of refined P/E ratio – of 4.76 makes the company rather attractive.

March 10, 2024

AIR FRANCE IS SURPRISINGLY AND UNJUSTIFIABLY THE CHEAPEST FRENCH COMPANY
WITH A P/E RATIO OF ONLY 3

Image 2

Surprisingly, Air France, the country’s flag carrier, despite regaining profitability since 2022, improving financial health and demonstrating promising profit prospects, is unjustifiably the cheapest French company with a P/E ratio of only 3. Even certain political and social risks fail to justify such an undervaluation.
AIR FRANCE share price as of March 8, 2024: €9.71
EPS: €3.14
P/E Ratio (“PER”): 3.09
Expected earnings growth rate (“g”): +7% per annum
Interest rate (“r”): 2.72%
Potential Payback Period (“PPP”): 2.97

Image 2

The PPP is basically a mathematical adjustment of the P/E Ratio to the expected earnings growth rate.
Instant calculations of the PPP at https://www.stockinternalrateofreturn.com/instant_calculations.html

ANOTHER ATTRACTIVE FRENCH COMPANY

SAFRAN (AEROSPACE & DEFENSE) WHICH IS SUPPOSEDLY ONE OF FRANCE’S MOST EXPENSIVE
COMPANIES WITH A P/E RATIO OF 42,
IS ACTUALLY ONE OF THE COUNTRY’S MOST ATTRACTIVE STOCKS WITH A PPP OF ONLY 11

SAFRAN share price as of March 8, 2024: €195.44
EPS: €4.69
P/E Ratio: 41.67
Expected earnings growth rate: +28% per annum
Interest rate: 2.72%
PPP: 11.00

March 06, 2024

A UNIQUE TOOL FOR STOCK SELECTION : THE POTENTIAL PAYBACK PERIOD (PPP)

The Potential Payback Period (PPP) is a mathematical adjustment of the P/E ratio according to the varying earnings growth rate. It’s a synthetic and dynamic metric for stock selection which is understandably showing an astonishing efficacy, especially with high-growth stocks like those propelled by the revolution of artificial intelligence (AI).

NVIDIA

On October 7, 2023, we recommended: “NVIDIA: A strong buy on the basis of the PPP. Among the US major high-growth stocks, NVIDIA is the most attractive in terms of PPP, even though with the highest P/E ratio.” https://www.linkedin.com/feed/update/urn:li:activity:7116790087434035200/
NVIDIA stock price: +93.82% from October 7, 2023 ($457.62) to March 6, 2024 ($874.00).

SUPER MICRO COMPUTER, INC. (SMCI)

On February 9, 2024, we pointed: “SMCI: Second most attractive AI stock. Among the artificial intelligence-propelled stocks, SMCI is the second most attractive after NVIDIA. This conclusion is based on the PPP, which is a unique tool to evaluate and compare high-growth stocks with very high P/E ratios. https://www.linkedin.com/feed/update/urn:li:activity:7162484219326222336/
SMCI stock price: +51.92% from February 9 ($740.29) to March 6, 2024 ($1,124.70).

Image 2

Data as of February 9, 2024
g = Earnings growth rate
r = Interest rate = 4.16%
PPP = Potential Payback Period

Image 2

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

Sam Rainsy

March 02, 2024

HAVE U.S. TECH STOCKS BECOME OVERVALUED?

This inspiring article was published on March 1, 2024
The Roaring 1990s vs The Roaring 2020s
By Edward Yardeni
https://www.linkedin.com/pulse/roaring-1990s-vs-2020s-edward-yardeni-psvme/

“There is a big jump reflecting upward revisions in the long-term prospects for the growth rate of the MegaCap-8 companies (i.e., Alphabet, Amazon, Apple, Meta, Microsoft, Netflix, Nvidia, and Tesla) following great earnings reports by some of them recently. The long-term earnings growth rate (LTEG) of the MegaCap-8 is up from 13.4% during the January 31, 2023 week to 38.9% during the February 23, 2024 week.

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This is my comment: But what is the real impact of an increase in the LTEG on the evaluation of the MegaCap-8 companies? From Jan 31, 2023 to Feb 23, 2024, the LTEG increased from 13.4% to 38.9%. But the Forward P/E also increased from 22.0 to 28.0 because of the increase in share prices. This increase in the P/E may lead to believe that the shares have become more “expensive”. But over the same period, with the same LTEG increase, the Potential Payback Period (PPP) decreased from 12.42 to 8.13 despite the increase in share prices. This shows that the shares have become actually less “expensive”, which better explains the continuous bull market since. The impact of a LTEG increase is better felt with the PPP than with the Forward P/E because the former covers a longer period than the latter.

The PPP is a synthetic and dynamic metric for stock evaluation that mathematically adjusts the P/E ratio according to varying earnings growth rates and interest rates. Professor Emeritus of Finance at ESSEC (a top French business school) Patrice Poncet considers the PPP to be an “undeniable improvement” in financial analysis. More information at https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html

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

Rainsy Sam

February 29, 2024

STOCK EVALUATION USING A UNIQUE APPROACH
BASED ON THE POTENTIAL PAYBACK PERIOD (PPP)

The Potential Payback Period (PPP) is a mathematical adjustment of the P/E Ratio according to varying earnings growth rates and interest rates. It’s a synthetic and dynamic metric in stock evaluation whose relevance and efficacy are being proven.

Professor Emeritus of Finance at ESSEC (a top French business school) Patrice Poncet considers the PPP to be an “undeniable improvement” in financial analysis. More information at https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html

Send us the name of any company, in any sector, any country, and we will produce exclusively for you a free evaluation like the one below titled “Stock selection among the nine largest semiconductor companies in Japan”. Taking into account a risk factor and the visibility of each company, we can confirm that TOKYO ELECTRON is the most attractive stock in its sector. But RENESAS ELECTRONICS, with the lowest PPP in the sector, is particularly undervalued and its earnings could grow faster than presently expected.

If you want any stocks you are holding now to be also evaluated on the basis of the PPP, just send us their names. We can respond directly and privately to you.

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


RELATION BETWEEN THE P/E RATIO AND THE EXPECTED EARNINGS GROWTH RATE

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RELATION BETWEEN THE PPP AND THE BETA

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February 17, 2024

U.S. STOCKS THAT WILL MOST BENEFIT FROM THE ARTIFICIAL INTELLIGENCE REVOLUTION

VALUATION OF U.S. MAJOR TECH STOCKS

Advanced Micro Devices, Alphabet, Amazon, Apple, Applied Materials, Broadcom, Intel, Meta, Microsoft, Nvidia, Palantir Technologies, Qualcomm, Super Micro Computer, Tesla, Texas Instruments

Data as of February 16, 2024
Yield on U.S. 10-Year Treasury Note: 4.28%
P/E Ratios in descending order
g = Earnings growth rate per annum

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- Companies above the regression line are overvalued : Advanced Micro Devices (AMD), Broadcom, Apple, Qualcomm, Microsoft, Texas Instruments.

- Companies on the regression line are fairly valued : Amazon, Tesla.

- Companies below the regression line are undervalued : Nvidia, Super Micro Computer, Meta, Alphabet, Intel, Palantir Technologies, Applied Materials.

Nvidia could rise from $726 up to $1850 (+155%) and Super Micro Computer from $803 to $1900 (+135%) within one to two years if the earnings forecasts are materialized.

Most data are from Yahoo Finance https://finance.yahoo.com/quote/TXN?p=TXN&.tsrc=fin-srch

Simulations on earnings growth rates can be conveniently made by using this program for instant calculations : https://www.stockinternalrateofreturn.com/instant_calculations.html

This approach is based on the concept of the Potential Payback Period (PPP). The PPP is a mathematical adjustment of the P/E Ratio according to the expected earnings growth rate “g”, with a given interest rate “r”.

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More explanation of the PPP at https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html

The end product of the approach is represented by the regression line showing the relationship between the PPP and the Beta as a risk factor. This regression line is a synthetic stock selection tool that combines several fundamental factors that are essential in the determination of the stock value: the P/E ratio, the company’s profit-making capacity (or earnings potential) through the earnings growth rate, a long-term risk-free interest rate and the Beta as a measure of the risk associated with the stock.

This dynamic approach is based on a system of relative prices where the value of each stock is determined relative to that of other stocks at a given moment.

Rainsy Sam
Investment manager
Former Cambodian Finance Minister

February 15, 2024

COMPARISON OF WORLD STOCK MARKETS

SINCE THE BEGINNING OF 2024, JAPAN AND TAIWAN STOCK MARKETS, WHICH WERE IDENTIFIED AS PRESENTING THE HIGHEST “RISK PREMIUM” AT THE END OF 2023, HAVE ACHIEVED THE BEST PERFORMANCES

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A similar table with data as of December 28, 2023 was posted last year, with relevant explanation, at https://www.stockinternalrateofreturn.com/Stock-Market-Comparison.html

A stock's Internal Rate of Return (IRR) is to be compared with the yield of a long-term risk-free bond, with the difference between the two rates being the risk premium specific to each stock or stock market as a whole. The risk premium may not be fully justified. At a given moment, it may be considered too high or too low, leading to corrective movements.

The concept and the advantages of the PPP and the IRR are explained in detail at https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html

The reliability of these forecasts based on the concepts of PPP and IRR depends on the reliability and accuracy of the forecasted data entered into the model, particularly the projected earnings growth rate for the next 12 to 36 months. Any revision of earnings outlook in a stock market will lead to a re-evaluation of that market compared to other stock markets through a modification in the risk premium ranking. Political risk is put aside in this analysis which supposes “all else being equal”.

P/E Ratio = PER = Price Earnings Ratio.
g = Projected earnings growth rate for the next two or three years.
r = Long-term interest rate on a risk-free bond (such as the U.S. 10-Year Treasury Note).
PPP = Potential Payback Period. This is the time needed for the investment in the purchase of a stock to be "potentially paid back" through future profits progressing at rate "g" and discounted at rate "r".

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IRR = Internal Rate of Return. This is the discount rate that must be applied to future profits made over the period corresponding to the PPP for these profits to equalize the current stock price. The IRR formula is directly derived from the PPP.

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See mathematical demonstrations at https://www.stockinternalrateofreturn.com/Mathematics.html

Source of data: The figures for P/E Ratio (excepted for France’s) and projected earnings growth rates "g" come from Simply Wall St at https://simplywall.st?via=rainsy Because of continuous upward earnings revisions in the USA, the expected average earnings growth rate for that market (S&P 500) is revised from 15% to 20% per annum.

Rainsy Sam

February 11, 2024

”SUPER MICRO COMPUTER” SECOND MOST ATTRACTIVE AI STOCK

Among artificial intelligence-propelled stocks, “Super Micro Computer” is the second most attractive after “Nvidia”. This conclusion is based on the Potential Payback Period (PPP) which is a tool that can be used to help evaluate and compare AI stocks with very high P/E Ratios.

Data as of February 09, 2024
Raw data from Yahoo Finance
 https://finance.yahoo.com/quote/TXN?p=TXN&.tsrc=fin-srch
Yield on U.S. 10-Year Treasury Note: 4.16%
P/E Ratios in descending order. The P/E Ratio varies from 1 to 15, but the PPP which adjusts the P/E Ratio according to the earning growth rate, only varies from single to double.
g = Earning growth rate per annum

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

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February 10, 2024

“TEXAS INSTRUMENTS” WITH A P/E RATIO OF 23, IS ACTUALLY MORE EXPENSIVE THAN
“SUPER MICRO COMPUTER” WITH A P/E RATIO OF 58

For better stock comparisons the P/E ratio (PER) should be replaced with the Potential Payback Period (PPP) which is a mathematical adjustment of the P/E Ratio according to the expected earnings growth rate “g”, with a given interest rate “r”.

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Instant calculation of the PPP at https://www.stockinternalrateofreturn.com/instant_calculations.html
More explanation of the PPP at https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html

CONCRETE EXAMPLES

With the above formula we can rigorously prove that “TEXAS INSTRUMENTS” with a P/E Ratio of 23 is actually more expensive than “SUPER MICRO COMPUTERS” with a P/E Ratio of 57, and also more expensive than “NVIDIA” with a P/E Ratio of 95. This is due to the differentials in expected earnings growth rates: +10% for “TEXAS INSTRUMENTS”, +40% for “SUPER MICRO COMPUTERS” and +50% for NVIDIA, to be very cautious for the two last stocks.

Data as of February 09, 2024
Source: Yahoo Finance https://finance.yahoo.com/quote/NVDA?p=NVDA&.tsrc=fin-srch

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THE POTENTIAL PAYBACK PERIOD (PPP) :
A TOOL TO HELP EVALUATE AI STOCKS WITH VERY HIGH P/E RATIOS

Data as of February 09, 2024
Raw data from Yahoo Finance https://finance.yahoo.com/quote/TXN?p=TXN&.tsrc=fin-srch
Yield on U.S. 10-Year Treasury Note: 4.16%

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

Rainsy Sam

February 07, 2024

SIMULATION ON NVIDIA STOCK

NVIDIA STOCK REMAINS VERY ATTRACTIVE WITH A PRICE TARGET OF $1,200
EVEN WITH A MORE MODERATE EARNINGS GROWTH RATE
PROJECTED FOR THE NEXT FIVE YEARS

(+50% per year instead of +70% in our previous analysis, or even +100% for many analysts)

NVIDIA Earnings growth rate
Source: Yahoo Finance https://finance.yahoo.com/quote/NVDA/analysis?p=NVDA

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See more details on the PPP at
https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html

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Determination of the Price Target for NVIDIA stock on the basis of the above Regression Line

Earnings growth rate (g) = + 50% per annum (instead of +70% in our previous analysis).
Interest rate (r) = 4.02% (no change).
Beta 5Y Monthly) = 1.68 (no change).
PPP based on the Regression Line = (-1.2635 X 1.68) + 13.75 = 11.63 (instead of 8.20 in our previous analysis).
P/E Ratio based on the Regression Line = 157.5 (instead of 388 in our previous analysis).
EPS = 7.61 (no change).
Price Targe = 157.5 X 7.61 = $1.198 (instead of $2,952 in our previous analysis).

Sam Rainsy

February 06, 2024

AMONG THE "MAGNIFICENT SEVEN" U.S. GROWTH STOCKS
NVIDIA REMAINS THE MOST ATTRACTIVE
IN TERMS OF POTENTIAL PAYBACK PERIOD (PPP).
THE PPP IS A P/E RATIO ADJUSTED ACCORDING TO THE EXPECTED EARNINGS GROWTH RATE

Data as of Friday, February 02, 2024
Yield on U.S. 10-year Treasury bond : 4.02%

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See more details on the PPP at
https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html


NVIDIA’s "objective price" can be determined from a regression line as follows:

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DETERMINATION OF THE "OBJECTIVE PRICE" FOR NVIDIA STOCK
RELATIVE TO SIX OTHER STOCKS AMONG THE "MAGNIFICENT SEVEN"
BASED ON THE ABOVE REGRESSION LINE WITH FORECASTS AVAILABLE AS OF FEBRUARY 02, 2024

(MOST FIGURES ARE FROM YAHOO FINANCE https://finance.yahoo.com/quote/NVDA/)

Formula of the Regression Line: PPP = – 1.8879 Beta + 14.321
NVIDIA’s Beta (5Y Monthly) = 1.64 ——> PPP = 11.2248 ——> P/E Ratio = 388
EPS = 7.61 ——> Price = 2,952 versus 661.60 on February 02, 2024 (X 4.46 times)

Rainsy Sam
Membre de la SFAF
Ancien Ministre des Finances du Cambodge