RE: Fair value of the SP?16 Oct 2021 09:37
P/E is a useful metric. Because SLP has zero debt and lot of cash, the P/E ratio is even better value than the numbers suggest. For example, lets says company x has the exact same price and earnings as SLP. However, X has $ 5million in the bank and $30 million in debt, where as SLP has zero debt and $106(+20)=126 million in the bank. They both will have the same P/E ratio. P/E doesnt take into account debt or cash. Thats why the enterprise valuation is better in SLP case to see true value, as it unsually high cash balance and zero debt. But it is important to compare P/E against peers to see if the price relative to earnings is fair.
Lets look at wages. Lets say in the UK, the average wage for a cleaner is 8 pounds/hour. If cleaner Bob gets 4 pounds an hour, he knows that he is being underpaid on average, and should ask for a pay rise. Cleaner Jill, gets 12 pounds and hour so she's best to keep her mouth shut. Now adminstrator Chris, gets 12 pound an hour also. He gets paid the same as Jill, so he's happy? No because the avearage wage for an adminstrator is 15 pounds and hour. You get my drift?
So SLP's P/E is below its peers by a significant amount. However, the risk with SLP is the volatility of RHO. Thats why the current valuation is where it is. There are also some theorists who believe that PGM will be redundant in the near future. That also contributes to the low valuation However, we know that Rho's prices is linked with car sales, which in turn is linked to microchip shortages, so i this case, looking at the RHO prices daily, one can in fact predict in advance where SLP's hare price is going to go. That the beauty of this share, it takes seconds to check the RHo prices, and if it were to break key support levels I woud sell, but its looks like the downward trend is reversing to an uptrend- not quite confirmed yet but close.
However , as with any share, something unexpected can happen that could tank the share price, but that applies to all shares. Thats why, investing is not zero risk.
I tend to follow the price, using fundmental and technicals, as a guide, rather that trying to predict it. You can get an idea of where a price should be though using price momentum, and resistance and support levels, and looking at the balance sheets. However, sentiment and where we are in a market cycle(bull market, bear market, sideways market etc..) has a powerful hidden influence on the prices of all shares. A rising tide lifts all boats, just as falling tide does the opposite,
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