SHARE PRICE GRAPH
The share price graph presents the following information:-

1. Year-by-year EPS, adjusted to a normalised basis when historic (a solid line joining the very small circles on the financial year-end dates) and based on brokers' forecasts for the future (a broken line between the very small circles).
2. The average monthly share price shown by the solid line forming the boundary of the shaded area, which therefore highlights the share price movement.
3. The relative strength of the shares against the market, as measured by the FTSE All-Share Index, shown by the dotted line. The angle of inclination of the relative strength trend line shows if the company's share price has been moving up or down in relation to the market. The company's share price may have been increasing or decreasing, but the relative strength trend line tells you if the share price has performed better or worse than the market as a whole.
4. The highs and lows of the share price (adjusted as with all other statistics for rights and scrip issues etc.) over the last five years.
5. The average PER each year, based on month-end PERs calculated on the latest annual normalised EPS.
6. The relative strength (plus or minus) of the shares against the FTSE All-Share Index over the last month, three months, six months and one year. The dotted line shows the relative strength over the whole period covered by the graph.
7. The Beta factor which indicates how rapidly and consistently a company's shares move up and down with the market. The market's Beta coefficient is one; shares with a Beta larger than one are more volatile than the market and shares with a Beta of under one are less risky.

A logarithmic scale has been employed for two reasons. Firstly, it measures vertical movement on a proportional basis; this ensures that a given percentage movement will always be represented by the same distance on the vertical scale. If, for instance, the share price had doubled from 40p to 80p, the vertical movement would be exactly the same if the price doubled again to 160p.

Secondly, a logarithmic scale enables a direct comparison to be made between the graphs of different companies featured in REFS irrespective of share prices, provided that their vertical scales are on the same height ratio (the highest price divided by the lowest price on the scale). Logarithmic graphs on the same scale can be overlaid, but this kind of comparison cannot be made with graphs on a linear scale.

The graphs show how two companies would appear on a linear scale and a logarithmic scale. The assumptions are that the share price of company A was increasing by the same percentage each year, whereas company B's share price was increasing by the same amount of pence per share each year. As you can see, a logarithmic scale gives a far better visual impression of the year-by-year rate of growth and shows clearly if it is slowing down or accelerating.

Company A: Share price increasing at the same rate each year produces hyperbola Company B: Share price increasing by the same amount each year produces a straight line

Company A: Share price increasing at the same rate each year produces a straight line Company B: Share price increasing by the same amount each year produces a shallow curve, showing that the rate of growth is slowing down

There is no doubt that EPS and the price of a growth share are umbilically linked over the long term. The 15-year graph of Marks and Spencer illustrates this well.

The trend of EPS is therefore of major interest in identifying a growth share. The normal REFS requirement for a growth share is four years of consecutive EPS growth, either over the last four years, if there is no forecast, or a combination of past growth (usually two years) and future forecast growth (usually the current year and the one ahead). The trend of the EPS line on the REFS graph is of crucial importance as the first visual indication of whether or not a share can be classified as a growth share.

The trend of the average PER is also of vital importance as it indicates if there is scope for a further status change. Usually, as a company becomes increasingly acknowledged as a growth share, its PER rises in step with the company's improving status. If, for example, a PER had risen from say, 7 to 30, there would almost certainly be little remaining scope for a further status change. The PEG in the panel of key statistics will help to indicate if the share is over-priced or if the growth rate justifies the present price.

RELATIVE STRENGTH
The small panel headed RELATIVE % gives details of the relative strength of a share against the FTSE All-Share Index. High one-year relative strength is a very important criterion for selecting growth shares. It shows that the market is already beginning to appreciate the share's virtues. If one is investing hoping for an upward status change in the PER, high relative strength indicates that the wait should not be overlong.

High one-and three-month relative strength is also reassuring. Conversely, if it is poor, it might indicate that a few people out there know something is going wrong. However, great growth shares often pause for breath, although prolonged lack of relative strength can be an indication of something more serious.

O'Shaughnessy, in his book What Works On Wall Street, found that during the period 1954-1994, high one-year relative strength was the most important single criterion with an annual return of 18.14% compound compared with the market average of 12.45%. Conversely, low one-year relative strength showed the poorest return of all, only 1.78%.

ADVICE TO READERS While this website is checked for accuracy, we are not liable for any incorrect information included. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions. other sites in the group Investing For Growth your guide to successful investment and future earnings... The Company Guide The No1 Information source on UK stockmarket Companies Corporate Register The No1 Information source on decision makers in the UK stockmarket Companies Company REFS Company REFS is a UK investor site for Equity Market Investor pages The comparison website dedicated to the private investor Aim Quoted home of the active AIM investor UnQuoted The home of the Off-Exchange Investment Community Room to Invest Investor Pages – the one stop comparison website for private investors   © Copyright © St. Paul's Equities Limited Ltd 2008 Site map Disclaimer