how do you do your fundamental analysis and get fair value?

H

hanhao

how do you do your fundamental analysis and get fair value?

for Company Analysis, i would look at the ratios because they are the easiest to tabulate

- net Profit Margin.
- P/E Ratio.
- Book Value Per Share.
- Current Ratio.
- Debt Ratio.
- Inventory Turnover.

i understand there are other stuff like Economic Analysis and Industry Analysis

some questions :
- how do i look at these ratios and deduce that this stock is worth $1 and not $1.5?
- how often do companies report these ratios? quaterly or annually?
- would it be good to tabulate companies of the same industry and compare their to see who give the best sets of ratios. but what is "best set of ratio", how to compare?
- is there any program to tabulate these automatically and nicely




also, whats your take on http://www.sharesguru.com/valuationTools/cgviFormula.htm ?


CGVI : How it Works


Primarily used as an indicator in selecting shares worth further analysis. It combines the price/earnings ratio and the reinvestment rate into a single rating.

The formula:

1. Find the earnings yield, which is earnings per share divided by the price of the stock. Earnings yield is the reciprocal of the price/earnings ratio. Other things being equal you want to buy a stock with a high earnings yield, that is, with a low P/E.
2. Find the reinvestment rate. This is the amount of earnings not paid out in dividends (Earnings per share less dividends per share), divided by book value. It’s a measure of how fast book value per share is growing. It is a kin of the more often used return on equity, or earnings divided by book value. Either statistic tells us something about how effectively a company uses shareholder’s capital to make money. The reinvestment rate however, gives credit only for returns to capital that are put back into the business
3. Find the dividend yield, the annual payout divided by the stock price.

Now add A, B and C to give CGVI.

Suggested Levels:

>30


Special Buy

24 – 30


Optimal Buy

20 – 24


Accumulate

17 – 20


Hold

12 – 17


Look for better investment

<12


Do not consider

Assuming all other factors are constant, a doubling in earnings per share will roughly double the stock’s CGVI.
If a company increases the percentage of earnings paid out as dividends, it will reduce it’s CGVI if the stock is selling above book value. Increased dividends help when the stock is selling below book value.

One point to take note of, as the formula relies on past data, it assumes that the company will be able to continue to generate the same return in the future. For larger companies, in the later stages of growth, that will often be a problem. Due to this weakness, the formula works best with small and medium sized companies, where the potential for continued profitable growth is greater.
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experts here pls teach a newbie like me :wink:
 
my fundamental analysis is not based primarily on #'s that are company specific and available on Edgar (because that info is so readily available, i think edges are less prevalent there)

it is based on aspects of market share, overall market conditions, management, marketing skills, etc. etc. etc.

it's kind of a lynchian approach, more so than a ben graham approach. this has provided me a decent edge, so i use it

like for example

PIXR back when the incredibles came out

great management (Steve Jobs. ). good market share (and growing), and i saw capitalization on a market trend (providing an alternative in more wholesome and traditional values based movies.

good marketing (this is obviously somewhat subjective), good market penetration (although i thought dreamworks was somewhat a threat), in a growing part of the movie market.

then, to get VALUE, i wait for overreaction to so called bad news.

news comes out that PIXR Incredibles dvd sales were "dissapointing".

stock crushes downward. is it a good value HERE? yes, panic is a great place to buy fundamentally solid stocks. buy panic, sell euphoria. and i like the gap.

so i buy.

just purely crunching #'s is not the way i do fundamentals, but instead looking at management, market, marketing, market hype, public trends, etc.

it also helps to invest "what u know". i happen to know a lot about pharmaceutical drug delivery methods. so, i make many investments in that realm. this helps you look beyond the moronic analysts and find REAL value
 
not to menntion at the time the news came out, and it gapped down, the chart (TA) was ALSO very solid. in fundies, in TA, or in a combo of both - confluence is always good. multiple confirmations to your buy
 
Quote from hanhao:

how do you do your fundamental analysis and get fair value?

for Company Analysis, i would look at the ratios because they are the easiest to tabulate

- net Profit Margin.
- P/E Ratio.
- Book Value Per Share.
- Current Ratio.
- Debt Ratio.
- Inventory Turnover.

i
More...

Problem is that Debt Ratios, Inventory Turnover, Current Ratios, and net profit margin tell you nothing about what a company is worth. Those are accounting tools you can use to determine the financial strength or weakness of a company but they will not tell you what it is worth or fair value. A company is worth what someone is willing to pay for it and whether that value is fair is quite subjective.
 
even for a daytrader, i think fundamentals have some value. they are not necessary, by any stretch. they are sometimes helpful.
 
Quote from whitster:

even for a daytrader, i think fundamentals have some value. they are not necessary, by any stretch. they are sometimes helpful.
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yeah, gld up..buy gg, copper up...buy fcx, oil up buy vlo, etha up...buy peix and so on'n'on'n'on...
 
so is this to say that numbers and ratio analysis has no value?

i understand that ratio analysis is not everything

they are just a component of the bigger analysis which include technical analysis, CANSLIM and other subjective stuff

but surely there has to be some value to ratio analysis which increase our chances to pick a winning stock, right?

if so, how do we deal with ratio analysis + other analysis to do the following?

- how do i deduce that this stock is worth $1 and not $1.5?
- how often do companies report ratios? quaterly or annually?
- how does it tell if a company is fundamentally strong or weak
- would it be good to tabulate companies of the same industry and compare their to see who give the best sets of ratios. but what is "best set of ratio", how to compare?
- is there any program to tabulate these automatically and nicely
 
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