P/E ratio
I was talking with M on the way to work about the price of ISLN responding more to market news now that HP/Dell are bidding for 3Par, and Isilon is now on investor's radar more. However, the yearly EPS for Isilon is -0.03 cents so the P/E ratio is infinite. And even looking at the last quarter where IIRC EPS was around 0.06, the P/E ratio is pretty high. So the stock price of $21 reflects an expected EPS for some time in the shorter-term future, like in the next year or so.
We then got to talking about historical P/E ratio for the stock market, which IIRC is around 15 to 18. This number seemed familiar to me; as new landlords and renters we've been looking at housing prices versus rental prices. The historic P/R ratio is also in the 15 to 18 range.
Well, perhaps someone who has taken economics classes would not be surprised, but I'm sure this isn't a coincidence. In both cases, the historical ratios indicate the amount of money the market feels needs to be returned on an investment to be "worth it", and it doesn't matter if the investment is a stock or a rental home. In both cases, historically, one wants to see the investment made back in 15 to 18 years (when you don't account for interest, inflation, etc.)
The S&P500 is still above the historical P/E ratio, and ownership prices in the Seattle area are also well above the historical P/R ratio. So we're renting a house. Stocks aren't really different so I suppose if I was being an active and savvy investor I wouldn't have so much wealth in the stock market, given that the share prices appear over-valued.
We then got to talking about historical P/E ratio for the stock market, which IIRC is around 15 to 18. This number seemed familiar to me; as new landlords and renters we've been looking at housing prices versus rental prices. The historic P/R ratio is also in the 15 to 18 range.
Well, perhaps someone who has taken economics classes would not be surprised, but I'm sure this isn't a coincidence. In both cases, the historical ratios indicate the amount of money the market feels needs to be returned on an investment to be "worth it", and it doesn't matter if the investment is a stock or a rental home. In both cases, historically, one wants to see the investment made back in 15 to 18 years (when you don't account for interest, inflation, etc.)
The S&P500 is still above the historical P/E ratio, and ownership prices in the Seattle area are also well above the historical P/R ratio. So we're renting a house. Stocks aren't really different so I suppose if I was being an active and savvy investor I wouldn't have so much wealth in the stock market, given that the share prices appear over-valued.