To put skin on the numbers, let's look at a company like Coach (COH). (I would use Michael Kors [KORS], which I've mentioned in previous posts, but an older company like Coach will tend to have more solid numbers.)
Coach is a strong brand, growing around the world. When a woman works her way up the work world, her first luxury handbag well maybe COH. Well-respected by consumers and consistently well-received by the fashion community, Coach is poised to excel as it expands into Asia, particularly China.
Let's look at the numbers, as of market close today.
Range: $61.15 - $62.72 -- Nothing out of the ordinary here. The short range says that there was probably no major news about the company out today, as big news, like earnings hits or misses, can cause a price to flux more during the day.
52-week range: $45.70 - $79.70 -- If you've read news about the financial crisis raging in Europe, you probably already know that it's taken a toll on American markets recently, so some of this variation is likely due to that and not the fault of the company. The current price of $61.82 is about in the middle of the range, which can be a sign that the stock is now not so expensive.
Market cap: $17.77B -- Coach is big -- and growing! Its market cap is about $10 billion more than KORS, due to its higher price and that more of its shares are available in the market.
P/E ratio: 18.47 -- Personally, I think this is the best signal about COH. The S&P 500, one of the most common market indexes referred to, has a P/E of about 14 right now. In a way, this means that the market itself is worth about 14 times what it earns; anything close to that number sets a company up on the road to fair valuation, rather than overvaluation. Basically, you're paying the right price, rather than too much. COH's 18.5 is completely and totally manageable, and actually quite low for a company growing as quickly as COH is. A low PE is a sign of maturity, but can also be a signal strength. Excellent sign here, as its in line with its peers (TIF, with 15.72) but a steal compared to UA, with PE of nearly 57, or KORS, with about 60.
Dividend: $0.30/share, with a dividend yield of 1.94% (Dividend yield, or DY, is the percentage of the current stock price that the annual dividend makes up. The higher the better, of course.) -- YAY, free* money!!! And a DY of nearly 2% for a cyclical consumer stock in the US is a great deal right now since many companies are keeping their cash to expand operations or to save in case of a rainy day that looks like 2008.
EPS: $3.35 -- Again, solid performance in the past year by COH. This means that if you'd bought 10 shares last year, you would have pocketed an extra $33.50 on your investment. Not bad at all.
So, there you have it. Narrative + numbers = a good buy. Coach looks like a pretty good one right now if you can afford the $62 per share.
Next time, I'll take you through the scary stuff: the financial reports. Don't be scared --- they're not that bad, and you don't need a CPA to get what's going on.
Til next time!
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* You know that old saying about the only two envitable things in life are death and taxes? Yeah, we'll talk about taxes later.
