Educational Programming Video
The Value Line Investment Survey
Program 11: The Stock Price Chart at the Top of the Value Line Page
In this session and the next, we're going to discuss the stock price chart that appears at the top of every Value Line company report page. The chart takes up a large amount of space and contains a great deal of information, including some new data added in the past several years. Because of the complexity of the chart, I strongly suggest that you have a copy of a Value Line company page in front of you as I move ahead with my discussion. If you don't already have a Value Line page, you can find one in several of the pamphlets included in the Education section of our Web site. One such pamphlet is "How to Invest in Common Stocks;" in it you can find a sample report on page 21. You can also find current pages on our Home Page in the section, The Dow 30. There you can find our latest pages on all of the stocks in the Dow Jones Industrial Average, and you can print any one out.
To start, at the top of our chart we show a High and Low price. Those are the High and Low stock prices for the calendar year shown at the bottom of the chart.
Now, by definition, a stock price chart shows the historical prices of a stock. However, there is no one standard type or size of a price chart; they come in virtually every type you can imagine hourly charts, daily charts, weekly charts, monthly charts, annual charts, and more, and in many sizes, as well.
The Value Line chart shows monthly price movement of a stock for as much as 12 or 13 years. The prices are shown by solid vertical lines, which show the high/low price range in which a stock traded in every month.
By the way, all the historical data in our charts (and anyone else's also) are always adjusted for all stock splits and large stock dividends. With a 2-for-1 stock split, for example, all historical prices are cut in half so that what was originally a price of $50 would be reported as $25 after the 2-for-1 split. Investors occasionally call or write Value Line and complain that our historical information has changed and there is probably an error. Much more often than not, however, there is no error; the data has simply been adjusted for a recent stock split.
When there is a stock split, we show that split on the chart, right above the historical stock price data. A split will be shown as 2-for-1 or 3-for-2, for example, with a small arrow pointing to the month of the split.
Continuing with the historical price data, you will normally see a solid line generally running through or along with the monthly price data. That is called the "Cash Flow" line. The "Cash Flow" line is derived by first adding a company's earnings per share and depreciation per share to calculate "Cash Flow" per share for each year. Then we assign a multiple that, when multiplied by the "Cash Flow" per share, will result in a line that most closely matches a company's stock price history, and also "fits" the projected 3- to 5-year Target Price Range.
Normally the right-hand portion of the "Cash Flow" line changes from being solid to being dashes. The dashes indicated that that portion of the line is based on Value Line's estimates for cash flow, not on actual numbers that are used in the solid portion.
The concept of a "Cash Flow" multiple is not too different from that for a Price/Earnings multiple or, as we more often say, ratio. The difference here is that instead of dividing the recent price of a stock by 12 months of earnings to create a P/E multiple, we divide the recent price by the total of 12 months earnings plus 12 months of depreciation.
Why does Value Line publish a "Cash Flow" line? Because there is evidence that some stocks will generally trade at a price close to the "Cash Flow" line. In those cases when a stock price is trading above the "Cash Flow" line, it will often move back down toward the "Cash Flow" line. When it is trading below, it will often do the opposite. In other cases, however, a stock may trade above or below the "Cash Flow" line for considerable periods of time. When there doesn't seem to be a consistent relationship between the historical prices and the "Cash Flow" line, we suggest that you concentrate on other factors when analyzing a stock.
There is actually considerably more information in the stock chart, and we will discuss that in the next session.
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