Calculating net tangible assets problem

RandomInvestor · 12 January 2017

I forgot to mention I just used Apple to make it simple because its well know but yet again might be contradictory considering bigger companies are harder to evaluate. I only talked about Sirtex because it was mentioned above.

Also I do understand the difference between price and value, I think its cheap not JUST because it fell 50% or so, but because it fell 50% and its a quality business. Do correct me if this is a bad way of looking at it.

luutzu · 12 January 2017

RandomInvestor said:
Ah ok I was thinking of buying Sirtex it seems undervalued it has dropped over 50% surely its undervalued now and its a very solid company.

galumay said:
Really? What made you suddenly jump from asking about Apple's financials to thinking of buying Sirtex?

Just because a share drops 50% does not mean its undervalued, it means its price has dropped by 50%, nothing more and nothing less. You need to get the ideas of price and value clearly differentiated in your mind!

What do you mean by "its a very solid company"?

I really think you should spend some more time on self education before you start throwing your hard earned cash at the share market.

Here's one chart showing that Sirtex is one heck of a solid business.

It show the same pattern as other known quality businesses I've looked at and discussed here: www.danginvestor.com

[sorry for the self-promotion, but we're discussing and my link goes a long way to support the argument, I think].

What is the pattern?

Contributed Equity and its accumulated returns.

Since 2011, SRX has retained more earnings than all the shareholders equity has ever put into it (excluding the dividends paid out). In fact, as shown by the blue and red bar, Net Op. Cash received in 2011 alone almost equal all the equity that has ever put into the business.

Then it kept on growing and growing, paying higher and higher dividends (purple) while contributed equity rarely changes.

In 2016, its net operating cash almost doubled all the equity contributed.

Not many other businesses could achieve that. And rarely are they sold at such low multiples.

This is not to say that its share price wouldn't drop further. In fact, I was thinking that it would drop a whole lot further than when I bought a small amount (with all my spare cash) at $14.20s... So here's hoping that it'll crash further. So go Trump, tweet something true about the drug companies.

And true, we can all say that these are past performances. The future lies ahead and SRX's drugs are doomed.

I've looked at that and the market's loathing of Mr Wong's maybe illegal, maybe bad timing, sales of stocks. And SRX is one to hold for the lifetime, especially at these and lower prices.

RandomInvestor · 12 January 2017

Ah ok thanks, no problem about the advertising you are providing a good service.

luutzu · 12 January 2017

RandomInvestor said:
I forgot to mention I just used Apple to make it simple because its well know but yet again might be contradictory considering bigger companies are harder to evaluate. I only talked about Sirtex because it was mentioned above.

Also I do understand the difference between price and value, I think its cheap not JUST because it fell 50% or so, but because it fell 50% and its a quality business. Do correct me if this is a bad way of looking at it.

Let say we somehow know that a "fair value" of the business is $100. It's a quality business and all solid, and some master tells us that its fair value is $100 a share.

But it is selling at $200. Then it drops 50% to now $100.

Is it a bargain or are now simply at fair value?

So you'd need to have some good ideas as to how such a business is value by yourself based on your own understanding; also by how the market generally priced this same company (e.g. how many multiples of earnings, say)... then you have to understand the business well enough to see what its future development could foreseeably be.

Then somewhere among those range of values is what you think the fair price is. Compare that to the market price and see if it's a bargain or not.

Note that often, good quality businesses rarely go for fair and reasonable value. It might never be sold at that level. Then again, it might be way, way down below that fair value.

So you got to kind of decide whether fair is reasonable enough; or wait for it to be a seriously real bargain.

To me, SRX at $30 a share is reasonable over the long term (say 7 to 10 years). At $14, forget about it.

But take CSL... it was at something like $130-$150 a share where I kind of guess that around the $100 would be more reasonable. And if I have a whole lot of cash, I'd load up on it and forget about it for a while.

Not having that much cash, I've try to wait until it's very very unreasonable. It might never happen, but then again I might get lucky.

So far though, only a couple of lucky breaks and a couple of major unlucky buys where the Market kind of wait for me to buy then halved the stock just for laughs.

galumay · 12 January 2017

RandomInvestor said:
I forgot to mention I just used Apple to make it simple because its well know but yet again might be contradictory considering bigger companies are harder to evaluate. I only talked about Sirtex because it was mentioned above.

Aghhh.. i see, I think its because i cant see the posts you are referring to because I have that user on my "Ignore or blocked" list.

Also I do understand the difference between price and value, I think its cheap not JUST because it fell 50% or so, but because it fell 50% and its a quality business. Do correct me if this is a bad way of looking at it.

Its not a question of me correcting you, I am just questioning your thinking - which hopefully we both learn something from! So, its cheap because it fell 50% and its a 'quality' business, and its a 'quality' business according to your earlier post because of its 'financials'?

That doesnt seem to be a very logical conclusion to me, firstly I still dont think you are perceiving the difference betwen price and value, the price falling 50% does not mean that its cheap - regardless of quality of finanacials. It means the price has fallen 50%!

What is it about the financials that make it a quality business?

Forgetting about the price, do you have a process for working out a valuation for the company? Thats where I start with any business I am considering investing in, my method is to calculate IV (intrinsic value) based on a DCF model (discounted cash flow). I run several variations of it calculating cash flows in various ways and end up with a range of price valuation. Then I look at a whole range of metrics that interest me, ROE, operating margins, Enterprise value/earnings, debt/equity and many others.

A new aspect to my process of analysis of a business is I explain what the company does to my 13 year old son in one sentence - if I cant successfully communicate that to him I stop right there!

Anyway, i dont claim to have any special insight into this game, I just know its hard work and lots of learning, i have found a strategy and process that seems to suit my personality and ability - I am not so arrogant as to suggest it would be suitable for anyone else and I have certainly been doing it for too shorter time to draw any conclusions about performance. I am definitely on my L plates still!

luutzu · 12 January 2017

galumay said:
Aghhh.. i see, I think its because i cant see the posts you are referring to because I have that user on my "Ignore or blocked" list.
....

I'm a bit heartbroken that I'm on your ignore list man.
Not even referring to me by name too.

RandomInvestor · 12 January 2017

galumay said:
Aghhh.. i see, I think its because i cant see the posts you are referring to because I have that user on my "Ignore or blocked" list.

Its not a question of me correcting you, I am just questioning your thinking - which hopefully we both learn something from! So, its cheap because it fell 50% and its a 'quality' business, and its a 'quality' business according to your earlier post because of its 'financials'?

That doesnt seem to be a very logical conclusion to me, firstly I still dont think you are perceiving the difference betwen price and value, the price falling 50% does not mean that its cheap - regardless of quality of finanacials. It means the price has fallen 50%!

What is it about the financials that make it a quality business?

Forgetting about the price, do you have a process for working out a valuation for the company? Thats where I start with any business I am considering investing in, my method is to calculate IV (intrinsic value) based on a DCF model (discounted cash flow). I run several variations of it calculating cash flows in various ways and end up with a range of price valuation. Then I look at a whole range of metrics that interest me, ROE, operating margins, Enterprise value/earnings, debt/equity and many others.

A new aspect to my process of analysis of a business is I explain what the company does to my 13 year old son in one sentence - if I cant successfully communicate that to him I stop right there!

Anyway, i dont claim to have any special insight into this game, I just know its hard work and lots of learning, i have found a strategy and process that seems to suit my personality and ability - I am not so arrogant as to suggest it would be suitable for anyone else and I have certainly been doing it for too shorter time to draw any conclusions about performance. I am definitely on my L plates still!

Ah ok thanks Galumay, also lmao did you block me? Was I that annoying?

EDIT: Nevermind I read the above post.

RandomInvestor · 12 January 2017

I forgot to mention when you siad "

A new aspect to my process of analysis of a business is I explain what the company does to my 13 year old son in one sentence - if I cant successfully communicate that to him I stop right there!"

You read the Albert Einstein quote didn't you? To me its stupid because it doesn't matter if someone else can't understand what you are saying, it is important that YOU understand it, that's just my opinion.

Boggo · 12 January 2017

luutzu said:
Here's one chart showing that Sirtex is one heck of a solid business.

And here's another view of the same business !!!!!

(Weekly chart

click to expand)

luutzu · 13 January 2017

Boggo said:
And here's another view of the same business !!!!!

(Weekly chart View attachment 69520 click to expand)

Yea, that chart got be interested in SRX

Just got paid bigtime so I'm hoping the results of their studies proves a bit negative. Then I'll back the truck up... well, a toy truck is enough to load me up but yea.

Serious though... assuming all the potential gloomy outlook coming true, their current business and market alone more than make up for the current price. Any future growth and new market/products are just bonuses.

galumay · 13 January 2017

RandomInvestor said:
You read the Albert Einstein quote didn't you?

I wasnt aware of the Einstein quote, it was as a result of something that Munger or Buffett said about only investing in businesses where you really understood what the business did, they said something along the lines of "you should be able to describe what the business does in one simple sentence.", I chose my son as the audience for that because I am quite articulate and could probably describe quite complex businesses in one simple sentence - so it was a check on me fooling myself!

I suspect it matters a lot more than you realise if others cant understand what you are saying!

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