Issue #17 - Estimating initial rate of return

Warren has an unorthodox view of a company's earnings. He consider them in proportion to the number of shares he owns. If the company earns RM0.20 per share and one owns 1000 shares then he/she has just earned RM200. If those stocks are paid for RM2.00 per share the initial rate of return is 10%. The price paid determines the rate of return.

Price per earnings (PE) ratio is a useful metric to determine initial rate of return of owning stocks. Initial rate of return is 1/PE.

Price per earnings (PE) = Price per Share / Earnings per Share

Listed below are PEs of several companies for comparisons. The larger the PE the lower the initial rate of return.

Company     Price per share  EPS        PE     Rate
            (on 06/23/2006)  (Y'05/06)         of return
SP Setia    3.64             RM 0.324   11.2    8.90%
I & P       1.32             RM 0.151    8.7   11.44%
IGB         1.35             RM 0.072   18.8    5.33%
Malakoff    9.55             RM 0.572   16.7    5.99%
Star Pub    7.15             RM 0.446   16.0    6.24%
Plus        2.68             RM 0.213   12.6    7.95%
Maxis       8.65             RM 0.673   12.9    7.78%
Public Bank 6.25             RM 0.442   14.1    7.07%
Asiafile    5.45             RM 0.438   12.4    8.04%