event today?, page-7

medici, thanks for your intelligent discussion.

I am not in disagreement with you on P/E. My point is that you cannot reference ROE in isolation from price if you want to understand value. ROE speaks to quality of the business, not the quality of the investment at the current price. You have to adjust to the premium or discount you pay against equity if you want to evaluate the investment.

I prefer ROE adjustments to PE, because you can more easily view the company's ROE over many years and make conservative estimates about a normalized ROE value.

Regarding adjustments for cash, I think you are simply trying to calculate an enterprise value, and in that case probably you want to compare EBIT against that, just to adjust out any debt payments (which in this case are marginal so we are talking theory).

I think your approach would make sense for a branded products company, working in a non cyclical business. It's too dangerous to make that projection for Flight Centre. Flight Centre has been the great beneficiary of the rising tide of commodity pricing and rising Aussie dollar, both of which made Australians richer and more inclined to spend on traveling. As commodities unwind, that effect works in reverse. So there is a strongly cyclical element to the business, given the current customer base.

Having said that, I'm still trying to understand why Flight gapped down recently. I don't see the news that corresponds to that.