Before analyzing a company for investment, it's important to have a perspective on how well the business has performed.  Because at the end of the day, if you are an investor, you are buying the business.  The FAST Graphs™ presented with this article will focus first on the business behind the stock.  The orange line on the graph plots earnings per share since 1999.  A quick glance vividly reveals the historical operating record of the company.

Earnings Determine Market Price:  The following earnings and price correlated FAST Graphs™ clearly illustrates the importance of earnings.  The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line.  On graph after graph the lines will move in tandem.  If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.  

A quick glance at the historical earnings and price correlated FAST Graphs™ on Lincoln Electric Holdings Inc shows a picture of in-value based upon the historical earnings growth rate of 8.7% and a current P/E of 15.7.  Analysts are forecasting the earnings growth to continue at about 15%, and when you look at the forecasting graph below, the stock appears in-value (it's inside of the value corridor of the five orange lines - based on future growth).

When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident.  In addition to the 11.1% capital appreciation (green circle), long-term shareholders of Lincoln Electric Holdings Inc, assuming an initial investment of $1,000, would have received an additional $520.91 in dividends (blue highlighting) that increased their total return from 11.1% to 12% per annum versus 2.4% in the S&P 500.

The consensus of 8 leading analysts reporting to Capital IQ forecast Lincoln Electric Holdings Inc's long-term earnings growth at 15% (orange circle).  Lincoln Electric Holdings Inc has no debt (red circle).  Lincoln Electric Holdings Inc is currently trading at a P/E of 15.7, which is inside the value corridor (defined by the five orange lines) of a maximum P/E of 18.  If the earnings materialize as forecast, based upon forecasted earnings growth of 15%, Lincoln Electric Holdings Inc's share price would $87.63 at the end of 2018 (brown circle on EYE Chart), which would represent a 14.2% annual rate of total return which includes dividends paid (yellow highlighting).

Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in Lincoln Electric Holdings Inc to an equal investment in 10-year Treasury bonds illustrates that Lincoln Electric Holdings Inc's expected earnings would be 6.8 (purple circle) times that of the 10-year T-bond interest (see EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.

This report presented essential “fundamentals at a glance” illustrating the past and present valuation based on earnings achievements as reported.  Future forecasts for earnings growth are based on the consensus of leading analysts.  Although with just a quick glance you can know a lot about the company, it's imperative that the reader conducts their own due diligence in order to validate whether the consensus estimates seem reasonable or not.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation. A comprehensive due diligence effort is recommended.