Ridiculously High Forward P/E
September 28, 2012
– Comments (5) |
RELATED TICKERS: DSX
, DCIX
This is just a quick look at the 2013 P/E's for DCIX and DSX which are shown on Yahoo Financial, provided by ZACK'S.
First, a brief look at the balance sheet (as of the end of Q2) for DSX.
They are showing cash at more than $400M, which is greater than the total liabilities for the company. They showed equity of 2.6 times the total debt.
While they are still profitable, the lower rates being generated on new vessels have made them less profitable than in the past, but not as low as would be anticipated from the current trailing P/E of 6, moving to a forward P/E for 2013, which is projected to be over 72.
The 2013 estimates are skewed by the fact that they range from a high of $0.36 annual earnings, to a low of (- $0.05). This has resulted in a consensus 2013 earnings estimate of $0.11.
I would expect that the "casual" investor would see that forward P/E estimate and decide that they were on the verge of bankruptcy.
A quick look at the balance sheet (as of the end of Q2) for DCIX, shows the following.
Cash of only $10M, but with a new share offering in July, that would raise about $55M. They show equity of just over 2 times the total debt. This is before the cash generated from the new shares.
They too, are profitable, but with some of their charters ending this year and next, the rates are much lower than in the past, but they still have a number of charters outstanding that generate very good rates. The short term re-chartering of the vessels coming off charter are, and will be much lower. They are being done short term, and at about "break even". While they will be less profitable, they will not be swinging to a loss, just "less profitable".
The 2013 earning estimates for DCIX are even more skewed than for DSX. They range from a high of $0.33 to a low of a negative (-$0.42). This results in a consensus estimate of about $0.06 in earning for 2013. This causes the trailing P/E of about 16 (which I think is itself show as too high) to jump to a forward P/E of 79 for 2013.
It is my belief that these extremely high forward P/E's, coupled with light trading by "day traders" making up only about one quarter of one percent of the outstanding shares, have "beaten" these companies down to a level that is significantly less than their true value.
DCIX for the intermediate term (based on dividend and share appreciation potential), and DSX for a longer term hold (based on their "staying power" and potential to benefit from a global recovery).
I will be following up with a more detailed blog after the Q3 reports come out.
JMO and worth exactly what I am charging for it.
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