REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
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Rebasing
of the EPS plot
Rebasing
involves three separate actions:
First,
a point is chosen where the EPS plot can intersect the share
price plot; along the horizontal axis, this is normally the
date of the latest share price plotted and, on the vertical
axis, the actual price on that date.
Second,
a factor is determined which, when multiplied by the latest
EPS value at the chosen date, gives the share price at the intended
intersection point. This is actually the price-earnings ratio
at that point in time.
Third,
the rebasing factor is applied to each EPS value. The rebased
EPS series is then plotted against the vertical share price
scale, using small circles joined by a theoretical straight
line.
The point
of intersection chosen for the EPS plot is always, against the
vertical scale, a closing share price. Against the horizontal
scale, it can be one of three points, chosen as follows:
- Latest
share price on the graph
This
is the usual point chosen, and requires two conditions to be
met. First, that the EPS plot extends into the future, in other
words that it reflects brokers' consensus forecasts. Second,
that the last reported and next expected EPS values are both
positive (i.e. there must be positive EPS values falling immediately
either side of the intersection point, namely the latest share
price).
- Share
price on the year-end date for which the last preliminary
results were announced
This
point of intersection is chosen as the first default when the
last two reported results are both positive but there are no
brokers' forecasts available to extend the EPS plot into the
future.
- Earliest
share price on the graph
This
intersection point is chosen as the second default, and applies
when recent losses preclude the use of options 1 and 2 above.
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