05-04-2014, 11:21 AM
(05-02-2014, 11:36 PM)earthtodan Wrote: I can understand the average of ttm and fpe, but what's your thinking behind averaging in 2013 earnings? Seems to me it pulls things pretty far into the past.
Also curious to see how the gears work in the ranking machine.
Reasonable minds will differ about it, but I include 2013 earnings into the average because in my mind, it is the only truly "solid" number of the three. I'm not willing to spend the time to calculate a ttm earnings number myself, but I don't fully trust the ones reported by morningstar or yahoo either. I don't know if they are using diluted numbers, GAAP, non-GAAP, or what. Nailing down earnings is hard enough, but I am not comfortable relying on a reported number that I know little about. The forward projection of P/E based on expectations about 2014 earnings is valuable, but also based on guesswork. 2013 earnings, while arguably more and more stale over the course of 2014, at least are a solid foundation, and recent enough and relevant enough in my mind to make up a third of the average P/E number that I use.
I'll post a bit more in a few minutes about my "system" if I can.