For discussion and to determine the entry and exit points. Using P/E, CF/S and D/S

By using the historical P/E Ratio, CF/S ratio and the D/S ratio, one can determine what the entry and exit positions should be.

X is a public company that has well known products.

So here we go: for the past 2 years X has had an average P/E trading range of 14.3 (high) and 10.85 (low).

Over a longer term

X had a average P/E ratio of 21.9 (high) and 11.9 (low) over the past 10 years. X has also had some wild swings in the past, P/E values for example in 2005 X had a high P/E ratio of 31.50 and a 4.4 (low) in 2003 .

X has over time has an average annual Earnings growth of 50.23% over the past 10 years and a more consistent growth rate of 13.6% over the past 3 years. For the purposes of this analysis I am using the 3 year average increase to determine what X should be valued at.

Knowing or at least estimating future earnings you can estimate the share price. In this case X should earn about $3.61 in 2012 and using the average P/E the estimated trading range should be 51.68 (high) and 39.21 (low).

Looking at the price per cash flow ratio (P/CF) X has increased it’s CF/S. X’s 10 year P/CF has been in the nose bleed section of 70.2 (high) and 32.3 (low) however the three year average gives a better picture. The last 2 year averages is 12.5(high) and 9.5(low)

X’s CF/S is estimated to raise by 13% in 2012 to 4.02 per share this gives me a share price range of 50.19 (high) and 38.13 (low)

D/S, dividends per share is another method to help in determinating what a reasonable price is to buy X.

Looking at the price per dividend ratio (P/D) X has a range in this area as well. X’s 10 year P/D is 2.62 (high) and 5.2 (low) however the three year averages give a different picture. The 3 year average is 2.86 (high) and 5.42 (low)

X’s current dividend is estimated to raise by 10% in 2012 to 1.76 per share this gives me a share price range of 45.61 (high) and 32.49 (low) with a current 3.5% implies that X is trading below its 3 year averages. I believe that X will have an increase in price in 2012.

Now on to how to trade, as I’m looking to purchase shares of X so I would be writing a put at my price estimates in this case I’m looking to write 2 Put Options at $40 strike price on the

__www.m-x.ca__. I’m looking to sell them in October 2012, 2-Put contracts for the 40 strike price and collect the premium of $.90 /share. I am also a holder of X and I would also sell my current position at 50-52 range. So I’ll write 2 calls at 50 strike price and collect a premium of $ .90 / share in the same month (Oct).

If your wondering on what the return would be? The Put = 8000 /180 = 2.25% at an annual rate of 4.5% where as the Call would be 8600/180 = 2.09% and 4.18% for the year plus dividends which would make it close to 7.5% for the year. The rent collected is $360 for the 6 months plus any dividends.

*note* there is an offer to buy the TMX group for $50 per share.

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