Introduction
FAST Graphs, the powerful fundamentals analyzer software tool, is all about calculating fair value, or what we refer to as True Wort. The graph creates a fair value reference line, as well as a market-driven normal P/E ratio valuation calculation. The graph is interactive, which allows you to point to the triangles (on the orange line) or the asterisks (on the blue line) and a pop-up will appear with the calculation of date, price and P/E ratio in the pop up.
There are also several forecasting calculators that provide numerous “what-if” scenarios for calculation of fair value.
Historical
The historical charts (the top charts) provide you historical information. This includes historical growth rates, normal P/E ratios, earnings per share, dividends, etc. In other words, they tell you what has happened and how the stock price has reacted to what has happened. One of those pieces of information is whether earnings growth has accelerated, decelerated or stayed the same.
Forecasting
Regarding the forecasting graphs, it’s important to note the difference between the growth rates expected going forward versus historical. To summarize and simplify, the historical graphs show what has occurred regarding a company’s growth and how the market has valued the company based on that growth. In contrast, the forecasting graph is providing consensus estimates of future growth, which may differ materially from the past. Although we recommend reviewing both historical and forecast results, we suggest that valuation and/or buy, sell or hold decisions be based primarily on the future (forecasting). Although we can learn from the past, we can only invest in the future.
It’s important to understand that FAST Graph is a dynamic tool. In other words, when you draw different timeframes, FAST Graphs™ automatically calculates the different growth rates that apply to those different timeframes. Just like our tool, a company’s growth rates are dynamic and change over time. This is why we designed FAST Graphs™ to be able to run Earnings and Price Correlated graphs over timeframes as short as the last recent 2 years all the way up to 20 years of history. With this in mind, one of the best ways to use FAST Graphs™ to analyze a company is to start out running charts of 15 years (or even 20 years), followed by running shorter graphs.
First start with a 20-year graph, then run a 15-year graph, then run a 10-year graph, then run a 5-year graph, followed by a 3-year graph. This exercise allows you to determine whether a company’s earnings growth rate is accelerating, decelerating, or even staying the same. Furthermore, since the tool automatically applies the appropriate valuation formulas, you are also able to ascertain a better perspective of current fair value.
The blue normal P/E ratio line is telling you what valuation the market has normally applied to the stock for the period that you are graphing. It does not necessarily indicate that the stock is fairly valued or undervalued. However, you need to understand that that does not necessarily mean that the stock is fairly valued if it trades on that line. In other words, it’s simply a piece of information telling you how the market normally prices the stock. On cases when the normal P/E ratio (the blue line) is way above fair value, I will personally not buy the stock just because the market has been pricing it that way.
Dividends
FAST Graph reflects dividends in two different iterations. The first is the light green shaded area stacked on and above the orange line which depicts dividends after they have been paid out of earnings.
The second iteration of the honeydew colored line (it appears white on some monitors) is simply a plotting of each year’s dividend. This line serves two purposes. First of all, it allows the subscriber to determine whether dividends are rising steadily or if there have been previous dividend cuts. For example, when the dividends are stacked on top of the earnings line of a cyclical company, it could create the illusion that dividends were cut because the green shaded area would fall with earnings when, in fact, dividends were not cut. The honeydew line allows that to be quickly determined.
FAST Graph are very simple. They depict the business behind the stock (the orange line and green shaded area), and how the price correlates with the company’s business results (the black monthly closing stock price). FAST Graph show you the operating record of the business behind the stock first, and then overlays the price to see how it follows and correlates with the company’s operating results.
FAST Graphs Analyze Out Loud Video – Introduction
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