This article is presented as an update to an article I published on Flowers Foods (FLO) on September 22, 2016. Later in this article I will provide a direct link to the original.
Over the last several weeks stock price volatility has increased significantly above norms. All of a sudden it is not uncommon to see stock prices moving 5%, 10% or more in a single trading day.
Financial metrics such as P/E ratios, price to cash flow ratios, PEG ratios, price to sales ratios, price to book value, and many others, should be thought of as tools in the investor’s toolbox.
Recently, I have been engaged in rather intense discussions regarding the validity of P/E ratios versus PEG ratios as proper or appropriate valuation metrics. I generally find these types of debates befuddling for a couple of reasons.
Investing in great companies sits at the core of my investment philosophy. In this regard, I reject the idea that I invest in the stock market. To me, the stock market is simply the store I shop in to purchase interests in fine businesses.
I never invest in a common stock without a clear expectation of the future returns that it can generate for me. Consequently, I consider this one of the most important steps in my research and due diligence process.