The Buyout of Sallie Mae

Case Background: Sallie Mae has been the world's largest originator of student loans for some time. However, there have been some problems with school officials referring students toward specific lenders. Nevertheless, this has not stopped J.C. Flowers and the firm of Friedman, Fleischer, and Lowe to buy them out in a $25 billion deal. Discussion: After the buyout (which was at $60 per share) was announced, Sallie Mae stocks increased 18 percent. Top management has indicated that there will be no difference in the way student loans are processed. One concern, though, is that there may be increased regulation from lawmakers--a potential problem for this industry. The investors who purchased Sallie Mae are not overly concerned about this, however, as the stock price and potential for the company seemed irresistible.

Conclusion: Sallie Mae's P/E ratio currently stands at 21.07. This ratio, as well as other relevant financial information, should be taken into account before making a decision to purchase stock in this (or any) company. Disclaimer: P/E ratios are a quick way to sort out the leaders within the same sector. Never use a P/E ratio exclusively to make an investment. Remember, a P/E ratio is measured using historical trailing earnings for the previous 12 months and does not necessarily indicate strong future earnings. P/E ratios, when used with other market value ratios, can help investors to make consistent returns and to minimize losses. Various interpretations of a particular P/E ratio are possible: 0-13 - Either the stock is undervalued or the company's earnings are thought to be in decline. 14-20 - For many companies, a P/E ratio in this range may be considered fair value. The average U.S. equity P/E ratio is usually around 14, which means it takes about 14 years for a company's stock to earn back its full purchase price. Average P/E over the entire market is a good indicator of overall market strength. 21-28 - Either the stock is overvalued or the company's earnings have increased since the last earnings figure was published. 28+ - A company whose shares have a very high P/E ratio either really does have an exceptionally rosy future or the stock may be the subject of a speculative bubble. A company with no earnings has an undefined P/E ratio. Financial information was provided by http://finance.yahoo.com (04/16/2007) This investment article was edited by http://www.proof-reading.com; copyright © 2006 PE-Ratio.com. All rights reserved.

Nestle Now King of Baby Food

Case Background: Nestle is already the world's largest food company. Now, with the acquisition of Gerber Baby Food, it's going to become the world's largest baby food company as well. The price tag is hefty, as one would expect: $5.5 billion. Discussion: With such a staggering cost, is this actually a good move? It seems so. This new addition is not really out of place, as Nestle is the current largest producer of infant formula. Extending its offering from formula to baby food seems like a logical step. Another factor to consider is that Gerber has about equal brand recognition and consumer trust as Nestle. Gerber has been sought after by Nestle for over 10 years. Now, it seems, the time is mutually right for these two giants to do business. Conclusion: It looks like there's no downside to this. Nestle's P/E ratio is currently N/A, but the P/E ratio is always just one of many factors to consider. As for Nestle stock, buy, buy, baby. Disclaimer: P/E ratios are a quick way to sort out the leaders within the same sector. Never use a P/E ratio exclusively to make an investment. Remember, a P/E ratio is measured using historical trailing earnings for the previous 12 months and does not necessarily indicate strong future earnings. P/E ratios, when used with other market value ratios, can help investors to make consistent returns and to minimize losses. Various interpretations of a particular P/E ratio are possible: 0-13 - Either the stock is undervalued or the company's earnings are thought to be in decline. 14-20 - For many companies, a P/E ratio in this range may be considered fair value. The average U.S. equity P/E ratio is usually around 14, which means it takes about 14 years for a company's stock to earn back its full purchase price. Average P/E over the entire market is a good indicator of overall market strength. 21-28 - Either the stock is overvalued or the company's earnings have increased since the last earnings figure was published. 28+ - A company whose shares have a very high P/E ratio either really does have an exceptionally rosy future or the stock may be the subject of a speculative bubble. A company with no earnings has an undefined P/E ratio. Financial information was provided by http://finance.yahoo.com (04/14/2007) This investment article was edited by http://www.proof-reading.com; copyright © 2006 PE-Ratio.com. All rights reserved.

Is Best Buy the Best Buy?

Case Background: Best Buy has been able to capitalize on a key component of retail success--customer service--which has vaulted it ahead of competitors such as Circuit City, Costco, and Fry's. This has translated to a fourth quarter-gain of 18 percent. Discussion: The attention to customer needs is noticeable from the time one enters a Best Buy store. A friendly greeting is followed by a knowledgeable sales associate offering assistance. If the assistance is declined, the sales rep will not become pushy. This stands in contrast to other stores, where it is sometimes the case that employees are either unavailable, lacking in knowledge, or not well-trained. Customer loyalty is huge in the retail industry, and Best Buy's increasing profit demonstrates this.

Conclusion: Best Buy's current P/E ratio is 19.04, compared to 22.86 for Circuit City, one of its main competitors. In light of its focus on customer service, with earnings to back up the value of this, it may be a good time to invest. Disclaimer: P/E ratios are a quick way to sort out the leaders within the same sector. Never use a P/E ratio exclusively to make an investment. Remember, a P/E ratio is measured using historical trailing earnings for the previous 12 months and does not necessarily indicate strong future earnings. P/E ratios, when used with other market value ratios, can help investors to make consistent returns and to minimize losses. Various interpretations of a particular P/E ratio are possible: 0-13 - Either the stock is undervalued or the company's earnings are thought to be in decline. 14-20 - For many companies, a P/E ratio in this range may be considered fair value. The average U.S. equity P/E ratio is usually around 14, which means it takes about 14 years for a company's stock to earn back its full purchase price. Average P/E over the entire market is a good indicator of overall market strength. 21-28 - Either the stock is overvalued or the company's earnings have increased since the last earnings figure was published. 28+ - A company whose shares have a very high P/E ratio either really does have an exceptionally rosy future or the stock may be the subject of a speculative bubble. A company with no earnings has an undefined P/E ratio. Financial information was provided by http://finance.yahoo.com (04/06/2007) This investment article was edited by http://www.proof-reading.com; copyright © 2006 PE-Ratio.com. All rights reserved.