Investors today have ready access to vast amounts of information on companies, thanks to the web. Investment sites, such as Digital Look, the FT and Morningstar conveniently provide historical financial numbers, analyst consensus forecasts and a wealth of other company information.
Such sources can really speed up our research, and are a welcome boon to investors. However, there is a danger of relying too much on these sources and of being led astray. Before making a final decision whether to invest in a company, its always advisable to put in the legwork of checking the companys own financial statements and directors commentaries.
Good examples of the type of banana skins that may be encountered are currently on show in the cases of popular FTSE 100 shares GlaxoSmithKline (LSE: GSK), ARM Holdings (LSE: ARM) and AstraZeneca (LSE: AZN).
Pharmaceuticals giant GlaxoSmithKline has long been a favourite with income investors. The table below shows some dividend information currently being displayed by 4-Traders, one of a number of sites (including the FT) supplied by Thomson Reuters.
|Year ending||Dividend per share||Yield|
The problem here is that the analyst consensus estimates dont chime with what the company itself has told us; namely that it expects to pay an annual ordinary dividend of 80p for each of the next three years (2015-2017).
Now, the 2015 consensus estimate may be a result of some analysts including within their forecasts a 20p special dividend that Glaxo intends to pay this year. However, the same cant be said for the 2016 and 2017 estimates, which are also above the level the company has expressly guided on.
Glaxos 80p/5.7% yield may still be attractive, but anyone led to anticipate a higher ordinary dividend and yield is likely to be disappointed.
Technology giant ARM is one of the few high-growth shares in the FTSE 100. The PEG ratio price-to-earnings (P/E) divided by earnings growth is a measure many investors look to in valuing such companies. A PEG of less than 1 is considered excellent value for money. The table below shows the relevant information for ARM currently being displayed by Digital Look.
|Year ending||EPS||P/E||PEG||EPS growth|
On the face of it, ARMs current-year PEG 0.5 is hugely attractive. However, there is an issue with the 68% earnings-per-share (EPS) growth number. Thats because the 2014 EPS of 18.20p given by Digital Look is statutory EPS, while analyst consensus estimates are invariably for underlying EPS; apples and oranges.
If we go to ARMs 2014 results, we can work out that underlying EPS was 24.37p. As such, the EPS growth rate that should be feeding into the PEG ratio is 25.5%. Dividing the P/E of 31.3 by the 25.5% growth, gives us a PEG of 1.2.
Now, some would say a PEG of 1.2 isnt too much to pay for a world champion, such as ARM, but the stock isnt quite the screaming bargain implied by Digital Looks PEG of 0.5.
The different data providers do things in all sorts of different ways. Morningstar (UK) is unusual in that translates the financials of companies that report in foreign companies into sterling. This can be extremely helpful in many respects, but can also throw down banana skins. For example, consider Morningstars dividend record for AstraZeneca in the table below.
|Dividend per share||150.3p||168.6p||181.7p||179.7p||169.9p|
An investor using Morningstar to seek out potential investments might quickly rule out AstraZeneca on that ominously declining dividend in recent years. However, the company has not been cutting its dividend in its reporting currency (dollars), so the company is rather more healthy than Morningstars sterling dividend record might suggest.
Morningstar is also unusual in quoting dividends actually paid during the financial year, rather than dividends declared, which can, on occasion, lead to investors being misled in other ways.
Foolish bottom line
Whether its Morningstar, Digital Look, Thomson Reuters or another source, financial data providers have their limitations. And the companies and issues Ive mentioned today are just a few of the many youll come across.
Of course, researching companies is not always easy when work, family and other commitments may take up most of your time.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.