Financial Physics

Financial Physics Model
Validation of the Model

 

In this chapter we will further attempt to confirm the validity of our Financial Physics model, applying it to various individual stocks from different industries. We will compare the expected stock returns based on our Financial Physicsmodel vs the actual stock returns.

The following figures were obtained form Morningstar:

  • EPS
  • P/E Ratio
  • Dividend Yield%
  • Actual Annual Return

Additonal figures are FinancialPhysics calculations and predictions (in italics)

CONSUMER RELATED STOCKS
Chico's FAS Inc. (CHS)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $ $0.10 $0.17 $0.25 $0.39 $0.57 $0.78 $1.06 $1.12  
P/E Ratio 16.8 21.1 29.7 23.4 32.3 33.8 41.1 19.2  
Dividend Yield %   0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%  
EPS Growth Component %   70.0% 47.1% 56.0% 46.2% 36.8% 35.9% 5.7%  
P/E Change Component %   25.6% 40.8% -21.2% 38.0% 4.6% 21.6% -53.3%  
Fundamental Return %   70.0% 47.1% 56.0% 46.2% 36.8% 35.9% 5.7% 42.5%
Speculative Return %   25.6% 40.8% -21.2% 38.0% 4.6% 21.6% -53.3% 8.0%
Expected Return %
(Our Model)
  95.6% 87.8% 34.8% 84.2% 41.5% 57.5% -47.6% 50.5%
Actual Return %
(Morningstar)
  10.9% 185.2% 42.9% 95.4% 23.2% 93.0% -51.0% 57.1%
Garmin Ltd. (GRMN)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $   $0.53 $0.53 $0.66 $0.82 $0.95 $1.43 $1.84  
P/E Ratio   18.8 20.3 22.2 33.2 32.2 23.3 26.6  
Dividend Yield %         0.9% 0.8% 0.8%    
EPS Growth Component %     0.0% 24.5% 24.2% 15.9% 50.5% 28.7%  
P/E Change Component %     8.0% 9.4% 49.5% -3.0% -27.6% 14.2%  
Fundamental Return %   0.0% 0.0% 24.5% 25.1% 16.7% 51.3%   29.4%
Speculative Return %     8.0% 9.4% 49.5% -3.0% -27.6% 14.2% 8.4%
Expected Return %
(Our Model)
  0.0% 8.0% 33.9% 74.7% 13.6% 23.7%   25.6%
Actual Return %
(Morningstar)
    8.0% 37.4% 87.6% 12.6% 10.0% 47.0% 33.8%

 

chart

 


HEALTHCARE RELATED STOCKS
Johnson & Johnson (JNJ)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $ $1.47 $1.70 $1.84 $2.16 $2.40 $2.84 $3.46 $3.65  
P/E Ratio 31.7 30.9 32.1 24.9 21.5 22.3 17.4 17.8  
Dividend Yield %   1.2% 1.2% 1.5% 1.8% 1.7% 2.1% 1.7%  
EPS Growth Component %   15.6% 8.2% 17.4% 11.1% 18.3% 21.8% 5.5%  
P/E Change Component %   -2.5% 3.9% -22.4% -13.7% 3.7% -22.0% 2.3%  
Fundamental Return %   16.8% 9.4% 18.9% 12.9% 20.0% 23.9% 7.2% 15.6%
Speculative Return %   -2.5% 3.9% -22.4% -13.7% 3.7% -22.0% 2.3% -7.2%
Expected Return %
(Our Model)
  14.3% 13.3% -3.5% -0.7% 23.8% 2.0% 9.5% 8.4%
Actual Return %
(Morningstar)
  14.2% 14.0% -7.9% -2.1% 25.2% -3.4% 10.0% 7.1%
Merck (MRK)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $ $2.45 $2.90 $3.14 $3.14 $3.03 $2.61 $2.10 $2.53  
P/E Ratio 27.4 32.3 18.7 18.0 15.8 12.3 15.2 16.6  
Dividend Yield %   1.4% 2.4% 2.5% 3.2% 4.7% 4.8% 2.8%  
EPS Growth Component %   18.4% 8.3% 0.0% -3.5% -13.9% -19.5% 20.5%  
P/E Change Component %   17.9% -42.1% -3.7% -12.2% -22.2% 23.6% 9.2%  
Fundamental Return %   19.8% 10.7% 2.5% -0.3% -9.2% -14.7% 23.3% 4.6%
Speculative Return %   17.9% -42.1% -3.7% -12.2% -22.2% 23.6% 9.2% -4.2%
Expected Return %
(Our Model)
  37.7% -31.4% -1.2% -12.5% -31.3% 8.8% 32.5% 0.4%
Actual Return %
(Morningstar)
  41.9% -35.9% -1.1% -11.1% -27.8% 4.0% 35.9% 0.8%

 

chart

 


BANK /FINANCE RELATED STOCKS
First Regional Bancorp (FRGM)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $ $0.20 $0.30 $0.30 $0.38 $0.53 $0.95 $2.06 $2.55  
P/E Ratio 12.7 7.9 12.6 13.7 18.4 19.0 10.9 13.4  
Dividend Yield %   0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%  
EPS Growth Component %   50.0% 0.0% 26.7% 39.5% 79.2% 116.8% 23.8%  
P/E Change Component %   -37.8% 59.5% 8.7% 34.3% 3.3% -42.6% 22.9%  
Fundamental Return %   50.0% 0.0% 26.7% 39.5% 79.2% 116.8% 23.8% 48.0%
Speculative Return %   -37.8% 59.5% 8.7% 34.3% 3.3% -42.6% 22.9% 6.9%
Expected Return %
(Our Model)
  12.2% 59.5% 35.4% 73.8% 82.5% 74.2% 46.7% 54.9%
Actual Return %
(Morningstar)
  -6.7% 64.3% 35.9% 87.6% 84.3% 25.1% 51.3% 48.8%
Moody's Corp. (MCO)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $ $0.78 $0.49 $0.66 $0.92 $1.20 $1.40 $1.84 $2.05  
P/E Ratio 18.9 26.5 30.2 22.6 25.3 31.1 33.4 31.9  
Dividend Yield %   2.3% 0.5% 0.4% 0.3% 0.4% 0.3% 0.3%  
EPS Growth Component %   -37.2% 34.7% 39.4% 30.4% 16.7% 31.4% 11.4%  
P/E Change Component %   40.2% 14.0% -25.2% 11.9% 22.9% 7.4% -4.5%  
Fundamental Return %   -34.9% 35.2% 39.8% 30.7% 17.1% 31.7% 11.7% 18.8%
Speculative Return %   40.2% 14.0% -25.2% 11.9% 22.9% 7.4% -4.5% 9.5%
Expected Return %
(Our Model)
  5.3% 49.2% 14.6% 42.7% 40.0% 39.1% 7.2% 28.3%
Actual Return %
(Morningstar)
  18.7% 56.0% 4.0% 47.2% 44.1% 42.0% 6.8% 31.3%

INVESTMENT BANKING RELATED STOCKS
Goldman Sachs Group Inc. (GS)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $ $2.04 $3.19 $2.19 $1.74 $3.18 $3.95 $5.44 $6.37  
P/E Ratio 9.4 7.8 15.1 17.7 11.4 10.6 11.6 11.9  
Dividend Yield %   0.3% 0.4% 0.7% 0.6% 0.7% 0.6% 0.5%  
EPS Growth Component %   56.3% -31.3% -20.5% 82.7% 24.2% 37.7% 17.0%  
P/E Change Component %   -17.0% 93.5% 17.2% -35.5% -7.0% 9.4% 2.5%  
Fundamental Return %   56.6% -30.9% -19.8% 83.3% 24.8% 38.3% 17.5% 24.2%
Speculative Return %   -17.0% 93.5% 17.2% -35.5% -7.0% 9.4% 2.5% 9.0%
Expected Return %
(Our Model)
  39.6% 62.6% 2.6% 47.8% 17.8% 47.7% 20.0% 34.0%
Actual Return %
(Morningstar)
  60.5% -0.8% -19.7% 46.0% 14.2% 47.7% 22.1% 24.2%
Bear Stearns Companies Inc. (BSC)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $ $0.61 $0.79 $0.46 $0.80 $1.10 $1.18 $1.46 $1.42  
P/E Ratio 63.0 32.3 59.8 29.8 33.1 35.4 20.1 17.5  
Dividend Yield %                  
EPS Growth Component %   29.5% -41.7% 73.9% 37.5% 7.2% 23.7% -2.7%  
P/E Change Component %   -48.7% 85.1% -50.1% 11.0% 6.9% -43.2% -12.9%  
Fundamental Return %   29.5% -41.7% 73.9% 37.5% 7.2% 23.7% -2.7% 18.2%
Speculative Return %   -48.7% 85.1% -50.1% 11.0% 6.9% -43.2% -12.9% -7.4%
Expected Return %
(Our Model)
  -19.2% 43.4% 23.8% 48.5% 14.1% -19.5% -15.6% 10.7%
Actual Return %
(Morningstar)
39.4% -65.8% 55.9% -1.6% 27.1% 24.0% -28.9% -18.8% 3.9%

chart

 


MUTUAL FUND RELATED STOCKS
Franklin Resources Inc. (BEN)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $ $0.04 $0.19 $0.58 $1.28 $0.85
P/E Ratio     90.8 121.7 65 30.6 31.2  
Dividend Yield %                
EPS Growth Component %         205.2% 70.0% -33.5%  
P/E Change Component %         -46.5% -52.9% 19.6%  
Fundamental Return %         205.2% 70.0% -33.5% 80.5%
Speculative Return %         -46.5% -52.9% 19.6% -26.6%
Expected Return %
(Our Model)
        158.7% 17.1% -13.9% 53.9%
Actual Return %
(Morningstar)
      175.4% 67.4% 4.0% -32.8% 53.5%
T. Rowe Price Group, Inc. (TROW)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $ $1.69 $2.28 $1.91 $1.65 $1.97 $2.80 $4.06 $4.65
P/E Ratio 18.1 19.5 18.2 18.9 22.4 20.1 20.7 23.7  
Dividend Yield % 0.8% 0.8% 0.8% 0.6% 0.5% 0.5% 0.2%  
EPS Growth Component % 34.9% -16.2% -13.6% 19.3% 42.1% 45.0% 14.5%  
P/E Change Component % 7.7% -6.6% 3.8% 18.5% -10.2% 2.9% 14.4%  
Fundamental Return % 35.7% -15.4% -12.8% 19.9% 42.6% 45.5% 14.7% 18.6%
Speculative Return % 7.7% -6.6% 3.8% 18.5% -10.2% 2.9% 14.4% 4.3%
Expected Return %
(Our Model)
43.4% -22.0% -9.0% 38.4% 32.4% 48.4% 29.1% 22.9%
Actual Return %
(Morningstar)
19.6% -6.8% -2.6% 53.9% 34.6% 39.7% 21.7% 22.8%

 

chart

 


Technology Related Stocks
Oracle (ORCL)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $ $4.45 $4.01 $8.12 $15.24 $15.24
P/E Ratio     42.0 25.4 14.7 12.0 14.7  
Dividend Yield %       2.7% 2.2% 1.8% 1.7%  
EPS Growth Component %       -9.8% 102.4% 87.6% 0.0%  
P/E Change Component %       -39.5% -42.1% -18.3% 22.5%  
Fundamental Return %       -7.1% 104.6% 89.4% 1.7% 47.1%
Speculative Return %       -39.5% -42.1% -18.3% 22.5% -19.3%
Expected Return %
(Our Model)
      -46.6% 62.5% 71.1% 24.2% 27.8%
Actual Return %
(Morningstar)
      45.2% 10.0% 57.0% 25.8% 34.5%
Microsoft Inc. (MSFT)
Items 1999 2000 2001 2002 2003 2004 2005 YTD Average Annual Return
EPS $ $0.51 $0.47 $0.41 $0.38 $0.97 $1.30 $1.51 $1.51
P/E Ratio 102.2 72.2 77.4 51.5 42.9 33.9 29.9 32.6  
Dividend Yield % 0.4% 0.4% 0.7% 0.3% 0.4% 0.8% 0.9%  
EPS Growth Component % -7.8% -12.7% -7.3% 155.2% 34.0% 16.1% 0.0%
P/E Change Component % -29.3% 7.2% -33.4% -16.6% -20.9% -11.7% 9.0%  
Fundamental Return % -7.4% -12.3% -6.6% 155.5% 34.4% 16.9% 0.9% 25.9%
Speculative Return % -29.3% 7.2% -33.4% -16.6% -20.9% -11.7% 9.0% -13.6%
Expected Return %
(Our Model)
-36.7% -5.1% -40.0% 138.9% 13.5% 5.2% 9.9% 12.2%
Actual Return %
(Morningstar)
-35.1% 4.9% -38.7% 114.1% 6.8% 2.9% 11.0% 9.4%
chart