Use Sites Like Yahoo! Finance With Caution

From Chad Brand of Peridot Capitalist

Investors need to be careful when they do stock research on portal sites like Yahoo! Finance. If you enter a symbol in these sites you will quickly get a summary of where the stock trades. Not only do current prices show up, but also other metrics like market cap, earnings per share, P/E ratio, dividend yield, etc.

Keep in mind that oftentimes these numbers are wrong. They can include one-time items like EPS charges and gains, as well as special dividends. Also, the numbers aren’t always adjusted in a timely fashion to account for stock splits. The reason I wanted to point this out is because of an email I received summarizing the contents of this week’s Barron’s Magazine. It said the following:

ST Microelectronics, one of the top five global semiconductor companies, has been beset by troubles including flat sales, a struggle to cut costs, removing itself from the low-margin memory chip business, and competition from strong rivals like Texas Instruments and Qualcomm. Yet its 23x P/E multiple is double that of TI — and Technology Trader Bill Alpert "doesn’t get it."

If you follow semiconductor stocks you might know that Texas Instruments does not trade at 11.5 times earnings. If it did it would be a screaming buy. I’m surprised that a writer for Barron’s would make a mistake like this, but as soon as I saw it, I knew exactly where Mr. Alpert got that number; Yahoo! Finance.

Sure enough, when you enter STM and TXN into the site, it shows trailing P/E’s for the two stocks as 23 and 11, respectively. However, if you dig deeper you will learn that the TXN number is way too low, likely due to one-time items that Yahoo! (or more accurately the supplier of its data) did not remove. The actual trailing P/E ratio for TXN is 18.5. No wonder Barron’s "doesn’t get" why TXN trades at half the multiple of STM, it really doesn’t.

Don’t make the same mistake Barron’s did. Always double check numbers on finance portal sites if they look a bit strange. Chances are they were miscalculated.

Full Disclosure: No positions in the companies mentioned

http://www.peridotcapitalist.com/