Thursday, October 20, 2011

Does the price of a stock matter?

This article on CNBC talks about the low-price companies in the S&P 500 (link).  When I look at S&P 500 companies that have positive earnings and take the 20 lowest priced ones, I see a PE of 11.5 vs 13.2 for all S&P 500 companies with positive earnings.  Also, the low priced ones have a yield of 1.6% vs 2% for all, and an ROE of 8% vs 15.5% for all.  I'd say the price is not necessarily implying cheap stocks, unless you expect the fundamentals to turn around for them.  Overall using price as an algorithm for buying shouldn't work very well, and it looks like the numbers may bear that out.

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