What's your process/method when valuing a stock?

Zestilio

Zestilio

What's your process/method when valuing a stock? How do you make your decisions? (sure I mean long play).

I love revisiting the process that Francois Rochon shared in an old interview:

  1. I always start with the numbers: last 10 years’ revenues, profits, ROE’s, margins, etc.
  2. I compare with similar players in the industry. Sometimes, a company stands out.
  3. I then try to find out why. What do they do that is better than the others (do they have a “moat” or not)? I read the message of the CEO and interviews with him.
  4. I then try to figure out what the next 5 years (or 10 if I can) will look like. I want companies that can grow the EPS going forward at twice the average growth rate or better (12% and more).
  5. I look at how much management have invested in the company, how much they get in salaries and the level of stock options.
  6. In the end, investing in a company is all about becoming partners with its top management. I have to believe that these are outstanding people. They care about building something that will last not for their own good but because they get fulfillment in the art of building itself. And they care about treating everyone involved (clients, suppliers, employees, shareholders) fairly.
  7. Good businessmen (or businesswomen) are like artists: they have to do something with passion, something innovative and unique, that will last and that will eventually inspire others.
  8. In the final process, I try to figure out how much this marvelous company should be worth, and try to buy it in the market at half of what I believe it should trade in 5 years if everything goes somehow as planned (so to make 15% a year).
What do you think of that? Aren't these rules a bit old in the dynamic world?
 
===What's your process/method when valuing a stock?===

before thinking about the steps of valuating the company (do not confuse it with the stock) one should develop a concept of the value...

also, one should not expect that somebody who has a method that works will share it...
 
I've got a professor for this portfolio management class (we manage a real $500k with the goal of outperforming the S&P) that says take what the analysts are forecasting as the price target, subtract 20%, and that is a good starting point for a reasonable target. If there isn't much room to that price, he typically advises us against the stock.

We obviously go much deeper than that, but that is a filter we commonly use to throw out people's ideas in class lol.
 
I don't think these rules are old. They could possibly be complemented by some new social ratings to gauge sentiment, but not replaced. Not even displaced.

My own process starts with a more general filter of companies that have a perceived edge both in fundamental and technical terms. Then I go into its products, team and balance sheet in that order. Pricing and targets come last if it passed the first phase.
 
Zestilio said:
What's your process/method when valuing a stock? How do you make your decisions? (sure I mean long play).

I love revisiting the process that Francois Rochon shared in an old interview:

  1. I always start with the numbers: last 10 years’ revenues, profits, ROE’s, margins, etc.
  2. I compare with similar players in the industry. Sometimes, a company stands out.
  3. I then try to find out why. What do they do that is better than the others (do they have a “moat” or not)? I read the message of the CEO and interviews with him.
  4. I then try to figure out what the next 5 years (or 10 if I can) will look like. I want companies that can grow the EPS going forward at twice the average growth rate or better (12% and more).
  5. I look at how much management have invested in the company, how much they get in salaries and the level of stock options.
  6. In the end, investing in a company is all about becoming partners with its top management. I have to believe that these are outstanding people. They care about building something that will last not for their own good but because they get fulfillment in the art of building itself. And they care about treating everyone involved (clients, suppliers, employees, shareholders) fairly.
  7. Good businessmen (or businesswomen) are like artists: they have to do something with passion, something innovative and unique, that will last and that will eventually inspire others.
  8. In the final process, I try to figure out how much this marvelous company should be worth, and try to buy it in the market at half of what I believe it should trade in 5 years if everything goes somehow as planned (so to make 15% a year).
What do you think of that? Aren't these rules a bit old in the dynamic world?
More...

I think it should be much simpler than that.
 
Last edited:
You sound like an investor asking these fundamental analysis-type questions.
...you should be a trader instead, relying on a different set of questions/variables.

being an investor is harder, in my opinion...you're looking way too far into the unknown future. :confused: with everchanging finicky variables -- not to mention not instant gratification....who wants to have to wait...
 
Between ever changing Accounting lying and just plain lying, and even though most of what I took in college to better learn the financials, a monkey with darts can do better in a Bull market than fiddle with financials. Use weekly charts, higher highs/higher lows=trend up, look for dips to keep risk lower, do Debit Put Spreads if you want to hedge, buy only dividend/optionable stocks.
 
I love Rochon but one question I have been coming back to a lot recently is using EPS. He says 12% or better growth but a lot of companies are supplementing EPS growth with buybacks, pushing capital allocation into operations of the business. I'm wondering if it makes more sense to look at pure Net Income or assume share count stays constant and then account for share buybacks somewhere else. Thoughts?
 
Sotnis said:
I love Rochon but one question I have been coming back to a lot recently is using EPS. He says 12% or better growth but a lot of companies are supplementing EPS growth with buybacks, pushing capital allocation into operations of the business. I'm wondering if it makes more sense to look at pure Net Income or assume share count stays constant and then account for share buybacks somewhere else. Thoughts?
More...

All numbers are supplemented one way or another, but usually the big ones reflect where there is real impact - client shifts, new products etc. Net income is indeed clearer (as a rule of thumb.. in 70% of cases), but not always.
 
Zestilio said:
What's your process/method when valuing a stock? How do you make your decisions? (sure I mean long play).

I love revisiting the process that Francois Rochon shared in an old interview:

  1. I always start with the numbers: last 10 years’ revenues, profits, ROE’s, margins, etc.
  2. I compare with similar players in the industry. Sometimes, a company stands out.
  3. I then try to find out why. What do they do that is better than the others (do they have a “moat” or not)? I read the message of the CEO and interviews with him.
  4. I then try to figure out what the next 5 years (or 10 if I can) will look like. I want companies that can grow the EPS going forward at twice the average growth rate or better (12% and more).
  5. I look at how much management have invested in the company, how much they get in salaries and the level of stock options.
  6. In the end, investing in a company is all about becoming partners with its top management. I have to believe that these are outstanding people. They care about building something that will last not for their own good but because they get fulfillment in the art of building itself. And they care about treating everyone involved (clients, suppliers, employees, shareholders) fairly.
  7. Good businessmen (or businesswomen) are like artists: they have to do something with passion, something innovative and unique, that will last and that will eventually inspire others.
  8. In the final process, I try to figure out how much this marvelous company should be worth, and try to buy it in the market at half of what I believe it should trade in 5 years if everything goes somehow as planned (so to make 15% a year).
What do you think of that? Aren't these rules a bit old in the dynamic world?
More...

%%%%%%%%%%%%%%%%%%%%
I like your 10 years of data ;
or more, can be wise + helpful

I like to look 500 @ one time;
as SPY.........................................
 
You must log in or register to reply here.
Back
Top