Realistic Valuations

[robertbanking]

Hello you very amazing and intelligent individuals that make up these forums. I sincerely hope things are going well for you.

I kindly wondered when Value Investing there is lots of different valuations you can conduct on a stock for instance like the Total Enterprise Value. I please wondered what you feel is the most important calculation to carry out to determine if a stock is undervalued please? There is so many different calculations you can do such as comparing the P/E ratio of the stock you like for instance to others in the same industry. I just find it rather confusing and if anyone could be ever so kind to guide me with this it would be highly appreciated and i would be extremely grateful.

Hope you are enjoying your weekend and hope your investments continue to do well. Thanks again to all the amazing people on this forum who share so much amazing insight to help others. Very best wishes to you all.

 

[divs4ever]

i use normal P/E and take lightly but still glance at it forecast P/E ( usually by the analysts )

i then look at the D/E ( low P/E and high D/E , to me flags a possible 'value trap ' )

i ignore sector comparisons ( of P/E and D/E ) as i am considering the business as a standalone investment , i can already gauge if a sector is doing well or not , as well as some of the potential headwinds and tailwinds coming

later on i look at the payout-ratio ( see what flexibility they have in the balance sheet , say the ability to fund small acquisitions from the current cash-flow )

 

[qldfrog]

Hello you very amazing and intelligent individuals that make up these forums. I sincerely hope things are going well for you.

I kindly wondered when Value Investing there is lots of different valuations you can conduct on a stock for instance like the Total Enterprise Value. I please wondered what you feel is the most important calculation to carry out to determine if a stock is undervalued please? There is so many different calculations you can do such as comparing the P/E ratio of the stock you like for instance to others in the same industry. I just find it rather confusing and if anyone could be ever so kind to guide me with this it would be highly appreciated and i would be extremely grateful.

Hope you are enjoying your weekend and hope your investments continue to do well. Thanks again to all the amazing people on this forum who share so much amazing insight to help others. Very best wishes to you all.

I have absolutely nothing against value investing but I also have absolutely no trust in yearly reports, quarterly updates or management.
So yes, I'd really like to trust a ceo, judge a business on PE ,debt level, yearly profit.
Every year I fill some form for class actions, most of these for blue chips as the smaller crooks are not worth the time money of the lawyers and so go scotch free..is that the expression
So ultimately, I end up with TA via systems trading and ETFS for domain I find cheap on PE and macro economics..ETF reducing, well diluting, the risks of fake and fraudulent releases by management.
Not much help Robert I am afraid.
One way to help would be to keep a blacklist of crook directors and companies..and filter these out...
Then look at pe..and debt level ..as well as debt components..
Is loan due in 10y at fixed rate ,or floating rate needing renewal next year..
PE and debt is my vote

 

[galumay]

Unfortunately there is no magic formula, different businesses in different sectors require various valuation processes. Overall I don't use P/E because it's far too simplistic and earnings is such a manipulated metric in financial reports.

I don't try to get any real level of precision in valuation, I try to work out a range of valuation that I can then compare to price to determine how underpriced or overpriced I think the business is. I use a shorthand DCF to work out my range of valuation, it's got more difficult these days because now even FCF is often manipulated to arrive at incorrect values. (Share based compensation added, depreciation on right of use assets added, capitalised software hidden in investing CF), so I spend a fair bit of time just working out what the real FCF was rather then the reported number.

It's also worth remembering that mis-pricing in markets can continue for many, many years. I own shares in businesses that are grossly under valued by any methodology, trouble is I have held some of them for more than 10 years and there has been no sign of them closing the gap between value and price! I also own things that were never cheap, but were such great businesses that I was prepared to pay up to own them, and they have spent 10 years or more being greatly overpriced!

As I have developed as an investor I have come to think that looking for really great value is not the best approach, I prefer to focus my energy on finding well run businesses that have a long history of profits (FCF), no or low debt, management with a history of good capital allocation, simple to understand operations, directors with skin in the game and a history of resilience thru economic cycles. From there I am using my calculation of range of valuation just to check that it's not over priced. Honestly, I end up passing on nearly everything I research and analyse! It's either not better than the lowest conviction position I already own, or its price is too high.

All of this is just my process, philosophy, and opinions about investing and there are many other approaches that are equally valid, I think the most important thing is developing your own and then having the conviction to apply it consistently.

 

[divs4ever]

One way to help would be to keep a blacklist of crook directors and companies..and filter these out...

i do what i can on that angle ( not all of them get exposed in a timely manner )

i also tend to exclude smaller companies that import ' rockstar ' ( celebrity and very high profile ) folk , either as directors or 'brand ambassadors '

 

[TimeISmoney]

The problem with trying to value a share price is that there are more speculators out there than people investing in hard cold facts. Trying to read a company's financial position is an art form with all the accounting jargon, not impossible but it is something you'd need to follow the company for years and have accounting skills at the upper end of the spectrum.