Rather than use stop-loss orders, I prefer to manage my portfolio with PERT. 
When I see the pre-tax profit margin sinking, I sell. When I see a persistent 
decline in the growth rate for sales, pre-tax profits and EPS and they become 
significantly lower than I envisioned when I bought the stock, I sell. 

When the price drops below the estimated low price I have used on my SSG, I 
investigate. This is a real warning sign. Someone knows something I don't know, 
and it's probably bad news. 

Investors in Cisco Systems, Oracle, Disney, Enron, Tyco International, WorldCom, 
Lucent Technologies and others whose prices have collapsed could have salvaged 
more if they had tracked prices sliding below their SSG estimated lows. Waiting 
and expecting to get even is the triumph of hope over reality. 

By Ralph Seger 6/2003 Repair Shop

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February 15, 2004
Ivan,
As I understand your question you would like to know how to predict the
future when there is no indication of a trend which is bad.  I would look
at the trend of pretax profits as a percent of sales as exhibited in
PERT-A and the PERT-A graph.  When percent pre tax profits are headed down
it is usually followed by declinging EPS and price.
Ralph Seger

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January 29, 2004
Another way to look at whether the P/E ratio is excessive or not it to calculate the 
PEG, P/E as a percent of the growth rate. Use the forward E/S to calculate the P/E
ratio [found in LMIC JT PERT.xls]. That is analysts' estimated E/S about 12 months
in the future. I very seldom am willing t opay a PEG ratio above 100% using the 
above criteria.  Look at what we recommend in the IAS where we always display 
P/E as a % of the growth rate.  Remind your club members of the boom and bust 
of the 1999 period when P/E ratios got to nose bleed highs.
Ralph Seger

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The P/E for a stock can be thought of as similar to the P/lb (price per pound) for a
grocery item.  When you're at the grocery store looking at, say, hamburger you 
don't think "I can buy a package of hamburger for $2, what a deal". You consider 
the price per pound.  If the P/lb is way too high, you probably don't buy any then.
You buy some on another visit when the P/lb is more reasonablel  What is 
"reasonable" is based on what has been typical in the past.  If the price is way too 
low, you probably wonder what's wrong with the hamburger.

It's the same with stocks. You don't (or shouldn't!) think "I can buy a share of stock
for $20, what a good deal."  You should consider (among other things!!) the P/E
ratio (Price per dollar-in-Earnings). Just as you don't expect to pay the same P/lb 
for both hamburger and carrots (very different products), you shouldn't expect to
pay the same P/E for both McDonald's and Safeway (very different businesses).

One of the main concepts behind the SSG is that you should buy stocks at a "fair
price". With hamburger, "fair price" is measured by P/lb (not price per package);
with stocks, it's measured by P/E (not price per share). The main purpose of SSG
section 3 is to compute the Average (or Signature) P/E ratio; that's the "fair price".
The current P/E ratio can then be compared with the Average P/E Ratio to
determine if the stock costs too much at present.  That's the "Relative Value"
(Current P/E divided by Average P/E).

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One way to look at it is if your stock was trading at a PE of 10, it would mean you
would be paying $10 for every dollar of earnings. Your price of $20 would tell you
that the EPS is $2 x 10 (PE) = $20. Hence that is the multiple you also hear of 
when a stock "trading at 10 times earnings". Compare that to it's Signature PE, the
industry PE and even the market avg to guesstimate if you believe it to be fairly 
valued.  Marketguide.com will do this under ratio comparisons.

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when estimating future high and low PE, I typically use the average of the
five lowest values from the past ten years.  In the case of Lincare, this
gives me a high PE of 19.2. However, the 5 most recent years demonstrate a
definite trend of decreasing high PE's: 29.2, 26.7, 20.8, 19.8, 16.7.

What do others do in a case such as this?

Bob Mann

April 20, 2005
Bob, 
There is an old Wall Street saying of, "Don't argue with the tape."  I would use the 
lower more recent P/E value as indicative of investors collective judgment.
Ralph Seger

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I do not believe in thumbing my nose at facts.  I have sold all my BBBY and will suggest the same to our investment club in January. I bought it as a growth stock and it is no long growing at anything close to my original assumptions.  Those who buy now just because the price is down are ignoring the facts of life. Ralph - 12/22/2005

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All I know is that when sales, pre tax profits and EPS of a growth company slow to a languid pace that the P/E ratio and the price will usually decline.  However, there is always a difference of opinion and that is what makes a market.  I will ask the $64 question.  Why would anyone wish to buy or continue to hold or buy a growth stock that is no longer growing at nearly the rate that attracted investors in the first place? Ralph - 12/22/2005