Value Investing Analysis for subscribers
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Fields starting with ROIC and ending with BVPS are the analysed growth rates of the most important five enterprise data within the last 10, 5, 3 years and the last year.
The growth rates for the ROIC (return on invested capital), EPS (earnings per share) and Sales (revenue) as well the Cash Flow/ FCF – (Free Cash Flow) and the BVPS (book value per share) must go at best more than 10% for each respective time period.
Only then it is worth considering purchasing shares of the company.
The growth rates of all green fields are higher than 10%, i.e. the more green fields in a row belonging to the analysed companies, the better.
The theory is that an investment should only be considered if all the growth-rate-fields mentioned for all the years and all 5 company figures are green.
An orange box indicates the growth rate of the company figure is between 5% and 10%.
A red box indicates the growth rate of the company figure is below 5%.
A grey box indicates that currently at the moment none of the underlying calculations are available or that for these years no form of the companies base values are published.
The debt (Long Term Debt - LTD) of the company is displayed with green colored background, if the debt can be diminished within 3 years by the current Free Cash Flow (FCF).
The orange box indicates that the debt (Long Term Debt) could be diminished within the next 3 - 4 years by the current Free Cash Flow.
A red box indicates to the fact that the debt (Long Term Debt) cannot be diminished within the next 4 years by the current Free Cash Flow.
A grey box indicates, the free cash flow is negative (e.g. due to high capital expenditures), because those are subtracted from the cash flow when calculating the free cash flow.
MOS Price (MOS 5y and MOS 10y)
„B/Z“ means that the MOS price is below zero due to bad company data.
If the current price of the stock (Share) in the market is highlighted in red, the price is higher than any of the calculated MOS prices (Margin of Safety Price) for the moderate development.
This stock would be traded at present in the market as too expensive!
If the current price of the stock in the market is highlighted in light green, it indicates that this price lies below the MOS (Margin of Safety Price) of the 10-year moderate development (MOS 10y).
The stock would be a long-term purchase consideration!
If the current price of the share in the market is highlighted in dark green, it indicates that this price lies at or below the MOS (Margin of Safety Price) of the 5-year moderate development (MOS 5y).
This stock would be a definitive purchase consideration in conjunction with the principles of the Value Investing!
The margin of Safety (MOS) is 50% - you therefore buy, for example, $ 1 for 50 cents.
All the best while investing.
Thereafter, the PURE Bond-Share P/E Ratio is calculated which is determined from the current P/E and the bond P/E. This provides you with information about the profit earnings ratio compared to the government bond.
Comparison: P/E (price earnings ratio) and bond yields
US investors like to use the bond P/E to determine whether the market is stock-friendly. The thought behind this is that competition exists between a supposedly safe bond investment on the one hand, and a dividend earning stock with potential for price appreciation, on the other hand.
If the interest rate level of the bond is attractive then it will be more difficult for the stock to attract the attention of investors. However, if interest rates fall back to unattractive levels then stocks are quite often the better investment.
Consequently, the stock P/Es of the individual stocks and the bond P/E of 10 year bonds in a similar market environment are compared to each other and correlated.
If the stock P/E (price earning ratio) is lower than the P/E of the bond it will be highlighted in green; if it is higher, then it is highlighted in orange. Negative stock P/Es will be shown highlighted red.
The PURE Bond-Share P/E Ratio or the quotient of the two P/Es is important when considering this ratio.
If it is less than 0.5, then the earnings yield of the stock is twice as high or higher (highlighted in green) than the bond. The earnings yield is determined by the reciprocal of the P/Es.
Benjamin Graham, forefather of value-investing theorized that a stock was worth buying if its earnings yield was at least twice as high or higher than the bond yield.
If the yield of the stock is less than twice as high or even less than the bond yield then the ratio is highlighted in red and rises above 0.5.
Negative stock P/Es result in a negative PURE Bond-Share P/E Ratio which is highlighted in white.
The beta factor
In finance the beta factor of a stock is a derived number from the beta which indicates the volatility of a financial instrument to its overall market (index). It is therefore also a risk indicator of assets.
By definition, the market itself has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the macro market (e.g. the Dow Jones, etc.). An asset has a beta of zero if its returns change independently of changes in the market‘s returns.
A beta factor less than 1 means, the price fluctuation of the stock was weaker than those of its overall index. Lower-beta stocks pose less risk but generally offer lower returns (highlighted in green).
A negative beta means that the stock’s returns tend to move opposite direction to its total market return (highlighted in white).
Beta factor equal to 1 means, the stock price performance is according to its index (highlighted in white).
A beta factor greater than 1 means, the fluctuations of the stock were larger than those of the corresponding market (index) (highlighted in orange).
Higher-beta stocks tend to be more volatile and therefore riskier, but provide the potential for higher returns.
[Note: stocks with a beta greater than plus 1 are also referred to in Anglo-American specialist jargon as „aggressive stocks.“ On the other hand, stocks with a beta of less than plus 1 are considered to be „defensive issues.“]
Based on the scientific evidence, kept in the legendary book "The Intelligent Investor" by Benjamin Graham, we calculate for you the following key figures.
The price-to-book ratio (P/B ratio) is an asset-related indicator for assessing the stock market valuation of a company. In this case, the price of an individual stock is put in relation to its proportionate book value.
Therefore the P/B ratio should not quote above 1.5. (Graham, 2011: 371)
If the P/B ratio is less than 1.0, it is highlighted in green, if it is between 1.0 and 1.5, it is highlighted in orange and beyond 1.5 in red.
Stable dividend yields
The company should have stable dividends paid within the last 10 years.
Dividend yields at 0% are highlighted in red, between 0% and 3% in orange and greater than 3% in lightgreen.
Net Current Asset Value per Share
Another well-known conservative analysis of Graham is the Net-Net rule. (Greenwald et al, 2001: 197) Here, the investor is interested in the Net Current Asset Value of the company (current assets minus liabilities). (Lowe, 1997: 56)
Thus the Net Current Asset Value is a rule of thumb how much a company would be worth it for the shareholders if it would be discontinued and liquidated. If this value was higher than the stocks´ market price, this caught Graham´s attention. (Lowe, 1997: 56) However, that is no clear evidence for an undervaluation of a stock.
We point out the NCAVPS by dividing the net asset value by the current shares outstanding.
It now becomes interesting, when the current stock price is quoting below the NCAVPS. According to Graham, investors will benefit greatly if they invest in companies where the stock prices are no more than 67% of their NCAV per share.
A study done by the State University of New York to prove the effectiveness of this strategy showed that from the period of 1970 to 1983 an investor could have earned an average return of 29.4%, by purchasing stocks that fulfilled Graham´s requirement and holding them for one year.
We show that, on the one hand if the current stock price is below the current NCAVPS, on the other hand, if it quotes below 67% of the NCAVPS.
If the current share price quotes below 67% of the NCAVPS from the present or the previous year, the share price is highlighted dark green, if it quotes below the NCAVPS in light green and above the NCAVPS in red.
There are not many stocks trading below its NCAVPS. However, it is worth observing, as an exaggerating stock market may lead to the mentioned condition but also when companies are in crisis, just before a turn-around.
In 1929, after the stock market crash, Graham found many companies of this kind. Nowadays it is much more difficult, however, new situations of this kind arrive all the time. (Otte and Castner, 2011: 145)
A negative NCAVPS will be highlighted in red.
Moderate P/E ratio
The P/E ratio should not exceed more than 15 on average for the last three years. (Graham, 2011: 371)
However, if the P/E ratio is below 15, highlighted in green, the P/B ratio could be higher. (Otte and Castner, 2011: 118) If it is higher than 15 it will be highlighted in red, as well as if it quotes below 0. Finally, the product of P/E ratio and P/B ratio should not exceed 22.5 (the number results from 15 times the company´s profit multiplied by 1.5 times its book value). (Graham, 2011: 371)
Consequently if it is below 22,5 it will be highlighted in green, above 22,5 in red. A negative product will be highlighted in red.
These approaches concern mainly the defensive investor. (Otte and Castner, 2011: 118) The criteria can usually be met only by large, powerful companies. (Graham, 2011: 371)
NC or NA indicate a not calculable figure or a figure which is not available as well as a complete grey shaded field.