4 replies to this topic

[Russ]

I know that the stock market is supposed to be in the works but instead of waiting for a full up system, I have a simple suggestion that may give some value.

Stock prices in RL are not simply a division of the companies book value by the number of outstanding stocks, but a more accurate measure is the P/E ratio (price to earnings).

My suggestion is to multiply the EPS by a factor and have that as the stock price. Since nobody makes any money in RL, I don't know what the ratio should be but some suggestions would be 30 (the P/E ratio of the services sector), 25 (SWA P/E and the P/E of the air cargo sector), or 15 (BA P/E). The particular factor is not as important as the formula.

This proposal has the advantage of reflecting the success of the the airline, rather than just it size. It is also very simple to implement requireing no new information and no changes to the DB.

I also realize that it is as simplistic as the current system and that there are many other factors that contribute to a stock price. In RL, even if an airline runs a loss, the stock price remains positive.

[drv4truk]

Stock prices are not simple. I'm not sure if the P/E ratio is the way to go or not, as there are a lot of factors involved. Just one of the factors would be the stocks rating. In order for a stocks rating to increase, the amount of dividend the stock pays needs to be pretty good. So, if you want people to buy your stocks, you have to increase the didvidend paid per share. That means taking money directly from profits to pay the dividends. If you over pay the dividends, you end up with little operational cash availabel for expansion.

[Russ]

I am trying to set something that is pretty simple to calculate but is more informative.

This calculation reflects the airlines profit margin, not its simple book value. So someone with a high book value but small profit could have a low stock value.

Hmm, based on that, I can see that the book value could be part of the calculation. Otherwise a small airline with a large profit margin would be more valuable than a larger airline with a small margin. (although that is true in RL. SWA market cap is $13.5B vs BA's 6.5B).

I am ignoring divedends because most of the newer airlines don't use them and they are the only ones making money.

[Russ]

What do you mean stock rating? Do you mean sell, buy or hold?

[everotheleft]

I worked on the the stock market over the summer, but then I fell off the face of the earth. The system I had used a function of book value and forward profits, plus growth trending to come up with a price; however, they may not be using my implementation.