Real Money Book Question

[S2000]

Hi All,

I am reading Cramer's "Real Money." However, I am a little confused about what he says on pages 88-90, where he compares Walgreens to Rite-Aid. First, how does he know that Walgreens is growing earnings at 15% while Rite-Aid is growing earnings at 12.5%. Then he says he expects that Walgreens to earn $1.30 while Rite-Aid to earn $0.26. How does he do these calculations :confused: ? Please help.

Thank you

[bobwatford123]

Well, he compared either year over year or quarter over quarter and determined the percentage that earnings were going up by. Then he's saying he thinks walgreens to earn $1.30 per share and right-aid to earn $0.26
Let's just say Walgreens has 100,000,000 shares outstanding. If they earned $130,000,000 then that would be $1.30 a share. If they earned $200,000,000 that would be $2 a share. If they earned $1,000,000 it would be 1 cent a share.
Say Walgreens does earn $1.30 a share per year, if it was trading at $39 a share, it would have a P/E of 30.
He probably says that a stock should have a higher P/E if it has a higher growth rate also.
I'm just making up these numbers to provide examples but hopefully this helps if this was what you were actually asking. He's pretty good at explaining it when I read it a while back. Maybe reread the chapter again and it would help.

[bobwatford123]

Sorry I read "Sane investing in an Insane World", but I'm sure it is the same idea, if not the same book

[bobwatford123]

LOL, just looked, you were right it was Real Money : Sane Investing in an Insane World.