Meaningless comparison

Posted Oct 20, 2009 19:03 UTC (Tue) by drag (guest, #31333)
In reply to: Meaningless comparison by NAR
Parent article: Red Hat share price passes Microsoft's (The Inquirer)

I don't think that Microsoft's dividends amount to much. Just a few bucks per share, at most. It is $0.13 per share, per quarter.

The best quick-comparison you can do between company's stock prices, IMO, is the P/E ratio. It's Price (# of outstanding stock * price) divided by Earnings (Net Income). This gives a idea on how the expectations of the stock owners weigh against how much money the corporation actually makes.

This can be a good or bad thing, which is only useful with more back story information on the particular company. A high P/E could mean that the company is overpriced because it is hyped and in a bubble or it could mean that people just have very high expectations for the company... A low P/E could be a indicator that this is a great investment because it is a company that people overlook, or it could mean that it is a failing business and people are not going to touch it with a ten foot pole.

P/E ratio:
MSFT = 16.18 years
RHT = 61.71
IBM = 12.56
EBAY = 20.86
AAPL = 34.78

Generally speaking your looking for something under 10 years, I think. Seeing how most people are investing in the stock market in about 10 year increments then that makes sense in a sort of odd way.

Redhat, I think, is still cruising at a high stock price since it's Dot-Com bubble days... if you look at it it went crazy for a short time, but unlike most of those companies from that era it actually has been able to maintain some consistent growth rate and thus have not really given people justification for dumping it's stock.