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One Up On Wall Street

Earnings, Earnings, Earnings

2 factors, according to Lynch, which makes a company more valuable day by day, are earnings and assets. Sooner or later, value always wins because sometimes it takes a very long time for stock prices to catch up to the company's values. 


When talking about the stock prices and earnings of a company, Lynch says the following in his book: 


  • A company's money-making potential is relative to the useful measures of whether any stock is reasonably priced, under-priced or is overpriced. 
  • The P/E level tends to be the highest for fast growers and lowest for slow growers. According to him, the foray step towards looking at P/E ratios of various stocks that one owns is high, low or average, which are relative to the norms of industry norms. 
  • Before buying a stock, the P/E ratio can tell a person if it is useful to know whether what one is paying for the earnings is in line with what others have paid for the same gains in the past. 
  • A company which has a high P/E ratio must also have incredible growth in earnings to justify the high price, which is put on the stock.
  • According to Lynch, when it comes to future earnings, the best way is a knowledgeable guess on which will be based upon the current earnings of a person. 
  • For future earnings, a person needs to try and predict what is going to happen to the earnings in the next year, month or decade.

He writes that if one is unable to predict future earnings, at least they can find out how a company is planning to increase its earnings because then, one can periodically check to see if the plans are working out or not.


By adopting to five basic ways: like reducing cost, raising prices, expanding into new markets and by selling more of its products, a company can surely increase its earnings. 

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Units 13/24