FA - Reliable website?

[NegativeAsset]

Hi all

I've had a look around the forum and it looks like a great place to begin!

I had a look through some of the beginner sticky posts and a quick search but couldn't find what I was looking for relating to fundamental ratios.

I decided to begin looking at companies using FA (to begin with) to start paper trading, but different websites report different ratios, such as P/E, PEG, P/B, Beta, etc. and after thinking that some values are derived from the same formulas like PE why are they different, including sector/industry PEs?

For example I had looked at JBH and Intelligent investor, Reuters and wsj all have different values. How do I know which to go with, especially with sector PE ratios for comparisons.

I'm also finding it hard to find earnings surprises information.

At this time I do not have the availability for any paid services so I'm trying to work with free information (unless absolutely necessary).

Any help or a point in the right direction would be appreciated.

 

[Value Hunter]

In relation to the ratios being different for different websites that is because they define or calculate things according to their own definition. Their is no universally agreed definition for many of these ratios.

For example a p.e. ratio is is made up of two components. Price and earnings. What price is used? Is it yesterdays closing price or yesterdays average price or the last traded price? Or is it the volume weighted average price over a number of days? On the earnings side is that basic earnings per share or fully diluted earnings per share (calculates the potential dilution from stock options)? Is that headline earnings or normalized/adjusted earnings (i.e. adjusted for "abnormal" items). Is it last financial years earnings or trailing twelve month earnings (more common for U.S. stocks which report quarterly) or the analysts forecast for the current financial year earnings (i.e. a forward p.e. ratio)? Commsec even uses some sort of blend of last years earnings and the forecast earnings.

 

[luutzu]

In relation to the ratios being different for different websites that is because they define or calculate things according to their own definition. Their is no universally agreed definition for many of these ratios.

For example a p.e. ratio is is made up of two components. Price and earnings. What price is used? Is it yesterdays closing price or yesterdays average price or the last traded price? Or is it the volume weighted average price over a number of days? On the earnings side is that basic earnings per share or fully diluted earnings per share (calculates the potential dilution from stock options)? Is that headline earnings or normalized/adjusted earnings (i.e. adjusted for "abnormal" items). Is it last financial years earnings or trailing twelve month earnings (more common for U.S. stocks which report quarterly) or the analysts forecast for the current financial year earnings (i.e. a forward p.e. ratio)? Commsec even uses some sort of blend of last years earnings and the forecast earnings.

The way I see it, investor shouldn't make investment decisions based on any one else's database ratios and numbers. Those should only serve as a way to help narrow down the search - once narrowed, you then have to look into the context and history and meaning of the ratios and figures to get closer what it mean given the company and all the context.

The narrowing down through available databases have its own downside, but since we all have forums to muck around on, it'll have to do for now. Best would be to go through entire listed stocks and see, but that takes work.

Point is, financial ratios are only pointers... even if the definition and the algorithm (formula) behind them are generally sound and accurate... its ultimate use, its "truth" depends on the company, the industry and a lot of stuff... to really give a proper understanding of the company's health and operations.

In other words, to make decisions based on some figure alone can get you into a lot of trouble. There's trouble of the good kind where the stock goes up - and it goes up for other reasons than what you believe it goes up for, in which case you keep relying on the figures for other decisions that might not work out as well; Then there's the trouble of the bad kind where the numbers are right but the market have its own reasons and you think the number is wrong and the market is right.

In short, it depends.

All the brokers and database guys would have been rich if they could make money from the numbers alone.

 

[Boggo]

The way I see it, investor shouldn't make investment decisions based on any one else's database ratios and numbers. Those should only serve as a way to help narrow down the search - once narrowed, you then have to look into the context and history and meaning of the ratios and figures to get closer what it mean given the company and all the context.

The narrowing down through available databases have its own downside, but since we all have forums to muck around on, it'll have to do for now. Best would be to go through entire listed stocks and see, but that takes work.

Point is, financial ratios are only pointers... even if the definition and the algorithm (formula) behind them are generally sound and accurate... its ultimate use, its "truth" depends on the company, the industry and a lot of stuff... to really give a proper understanding of the company's health and operations.

In other words, to make decisions based on some figure alone can get you into a lot of trouble. There's trouble of the good kind where the stock goes up - and it goes up for other reasons than what you believe it goes up for, in which case you keep relying on the figures for other decisions that might not work out as well; Then there's the trouble of the bad kind where the numbers are right but the market have its own reasons and you think the number is wrong and the market is right.

In short, it depends.

All the brokers and database guys would have been rich if they could make money from the numbers alone.

Agree with all of that.
All these numbers can mean nothing and are viewed differently by different market participants.
The biggest issue I see with the numbers you are referring to is that they may only be accurate at some snapshot point in time but from there on are misleading.

An extreme case perhaps based on numbers, DSH, Dick Smith Holdings.
Below is a chart (reality) and during that period as the price was falling there was a number of brokers who either don't have a clue, were misleading people or were basing their opinions on those outdated numbers during the decline.

In Sept 2015 AMP were lowering their holding but it is worth noting where on the chart below the price was before the S&P index caught up.

I don't want to get into a TA vs FA discussion but what I am getting at is the lag in those numbers, or more so the lag in the reaction of the major participants who live by these numbers astounding.
Keeping an eye on who is buying, selling, increasing or decreasing their holding on any stock is imo a better barometer of FA (but still has lag compared to TA imo).

(click either of the three below to expand)

 

[NegativeAsset]

Thanks for the replies everyone, each was very helpful and had good points! I had just assumed most websites use last closing share price and latest half or full year results, but that's clearly an unfair way to think.

I understand everything is ultimately an 'indicator', and can be subjective, but I wanted to narrow down selections via FA and thought the better option was to use professional analyst data rather than my own as a beginner. I'm still learning about Australian companies and this is the first time I've looked at FA.

I do tend to overthink things at first, generally because I'm worried of doing something very wrong or inefficient.

Currently I am slowly putting together a small portfolio for simulated trading, so perhaps I should (FA wise) pick a website I prefer and collaborate that with my own results?