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.

This article will reveal the business prospects of Johnson Controls Inc (JCI) through the lens of FAST Graphs – fundamentals analyzer software tool.  

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.  

Earnings & Price Correlated Fundamentals-at-a-Glance

A quick glance at the historical earnings and price correlated FAST Graphs™ on Johnson Controls Inc shows a slight picture of undervaluation based upon the historical earnings growth rate of 10.6% and a current P/E of 13.6.  Analysts are forecasting the earnings growth to continue at about 14.7%, and when you look at the forecasting graph below, the stock appears  undervalued (it's inside of the value corridor of the five orange lines - based on future growth).

Johnson Controls Inc:  Historical Earnings, Price, Dividends and Normal P/E Since 1999

Performance Table Johnson Controls Inc

The associated performance results with the earnings and price correlated graph, validates the principles regarding the two components of total return:  capital appreciation and dividend income.  Dividends are included in the total return calculation and are assumed paid, but not reinvested. 

The following graph plots the historical P/E ratio (the dark blue line) in conjunction with 10-year Treasury note interest.   Notice that the current price earnings ratio on this quality company is as normal as it has been since 1999.

A further indication of valuation can be seen by examining a company's current P/S ratio relative to its historical P/S ratio.  The current P/S ratio for Johnson Controls Inc is .51 which is historically normal.

Looking to the Future

Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:

1.            The rate of change (growth rate) of the company's earnings

2.            The price or valuation you pay to buy those earnings

Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound and profitable performance.

The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.

Earnings Yield Estimates

Discounted Future Cash Flows:  All companies derive their value from the future cash flows (earnings) they are capable of generating for their stakeholders over time. Therefore, because Earnings Determine Market Price in the long run, we expect the future earnings of a company to justify the price we pay.

Summary & Conclusions

Disclosure:  Long JCI at the time of writing.