This week's question comes from Jerry in Orange Beach, Alabama:
Q: Is it unsual for the Sticker Price of a stock to be higher than it has ever sold for over a 10 year period? If this occurs, would it be better to use the highest ever price or stick with the Sticker Price? In this case, the MOS would be dramatically higher in one case and would appear to have more risk.
A: It's not unusual for the Sticker to be higher than the selling price at any given time. But remember, the Sticker price is going to increase over time as the earnings grow — so it's not surprising that the Sticker today is higher than the the price has ever been over ten years.
Still, I'd be curious whether I'm inputting the right numbers to get the Sticker. Double check that you are using the lower of the historical growth rate or the analysts' growth rate and the lower of the historical PE or 2X the growth rate. And make sure that you've got a business that can be priced! If it isn't consistent over long time periods then it isn't something you should play with.
Now go play.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.