When first bringing up a new stock in Toolkit, a Suggested Maximum Buy Price will be listed. Sometimes the suggested price is lower than the current price, which can lead to a question about how a quality stock wouldn't automatically be in the Buy range.
The Maximum Buy price is calculated as the highest price at which an investment in the stock might produce a desirable annual return of around 15 percent, with at least three times the potential gain as there is potential loss.
Part of this calculation is choosing a High P/E. For projected high P/E ratio, Toolkit checks the average high P/E Ratios of the last five years on a weighted basis, eliminating the highest high P/E Ratio. If that figure is over 30, Toolkit defaults back to 30.
To find the bottom of the price range, the projected low price is by default the projected low P/E ratio times TTM EPS, but has a floating cap, such that it will never be higher than 80% of the current price.
(To calculate a low P/E, Toolkit checks the average low P/E Ratios of the last five years on a weighted basis, eliminating the highest low P/E ratio. If that figure is over 20, Toolkit sets it back to the capped 20.)
If the quality issues (growth or efficiency) are unsatisfactory, you may see either a 0.00 buy price, or in very rare cases a negative buy price. If that happens, it's an indication that no price would be low enough to justify buying the stock, given the criteria of 15 percent growth over time.