The Valuation Checklist (Quantitative)

This could be done in Quantitative terms by looking at the following ratios. The first thing to look at would be the P/E of the company. The lower the ratio, the better it is. Same goes for the P/B ratio. If you get a sense of comfort looking at the two ratios as it’s not too high, then you can consider buying the stock. Looking at their trend over the years is also necessary.

A look at the Enterprise Value would also be a good idea in comparison to the Market Capitalization. The ratio of EV/EBITDA would also be of help. The low the ratio, the better.

All of these ratios should be looked at in relative comparison to older years of the company and also to their peers. This helps to identify if a “Fundamentally Sound Co.” is available at the better “Valuation” than the company you’re looking at in the same sector. (Ps. You need to run the Older Checklists on other companies too)

These should help you take a decision on how much % of the overall portfolio should be given to this particular company. I would start with a very small position of your overall portfolio and increasing/reducing the size based on Quarterly Results, Price Performance (a little technical analysis is also required, Techno-Fund Investing) & Management Commentary.

The Valuation Checklist (Quantitative) in Short

· Are you comfortable with the current P/E & P/B of the company?

· Are Competitor's P/E & P/B similar to that of your company's?

· Has the Company Performing Better than Nifty/Sector Index price-wise?

· What kind of Position Sizing would you be comfortable with for this Company?

But wait, this just not the Time to Go Ahead and Make the Investment. You still have 4 more Checklists to look at before you Buy the Stock. And the next one is an Important One which will help you Avoid getting Trapped into a Company which is involved in “The Financial Shenanigans”. 

An MBA, Passed CFA Level 1. Stock Market Investor. Director at http://E-global.in. Like Researching Listed Companies. Music Lover. Gym Goer. Like Travelling.

Comments

Post a Comment

Popular posts from this blog

The Basic Checklist

  As promised, I am going to share my checklist below. Well, I have made 7 sections of the checklist out of which I am sharing the 1 st section of my checklist in this post. It’s The Basic Checklist when you start to analyse a Stock. This checklist is more suitable for Mid-Caps/Small-Caps/Micro-Caps as Large-Caps are already a safe bet fundamentally. A basic understanding is required of the Sector that the Stock belongs to. If you have an understanding of how revenue is generated and how companies operate in this sector, it helps you better understand their financials. It is also important to understand if the raw materials for this sector are easily available & if it can replace imports. The basic analysis of the stock starts with its P/E, EPS, P/B & Book Value. I did not quantify a benchmark for these ratios but preferred that EPS & Book Value grew in the last 10 years and P/E is not very high. The next focus was on the Promoter Holding. It is better if the P...
Read more

The Full Checklist

Image
  The Basic Checklist : ü   Sector the company is present in? ü   How much holding the promoter has in the company? ü   How much of the promoter holding is pledged? ü   What is the 5 year Revenue CAGR? ü   What is the 5 year Net Profit CAGR? ü   How much has the Interest Cost Increased/Decreased in the last 5 years? ü   What is the Dividend Yeild? Is the Trend Increasing? ü   How much Debt has Increased/Decreased in the last 5 years? ü   How has the Trend changed in Debt/Equity Ratio? ü   How has the Trend Changed in ROE/ROCE? ü   Have the Cash from Operations been positive in the last 10 years? ü   Is the company been generating Free Cash Flow in the last 10 years? ü   Has the company been able to maintain a low Cash Conversion Cycle? ü   Is the product such which can replace imports? ü   Is it difficult to get Raw Material for the said Products? The Management Checklist : ü ...
Read more

Trimming for Growth: A Comparison of Bonsai Pruning and Stock Portfolio Management

Image
  As you can read in the title of the post, Stock Portfolio Management is quite similar to Bonsai Pruning. Pruning means cutting back roots, shoots, and branches to direct and control your tree's growth and shape. Stock Portfolio Management is similar to the method of Bonsai Pruning. The question of how has been answered below. ü   Pruning for long-term growth: When trimming a bonsai plant, the goal is to shape it into a mini tree with a desired form and aesthetic appeal. Similarly, when trimming a stock portfolio, the aim is to shape it for long-term growth and align it with your investment goals. ü   Removing unnecessary branches: In bonsai cultivation, unnecessary branches or shoots are pruned to maintain the desired shape and focus the plant's energy on essential growth. Similarly, in a stock portfolio, you may trim or sell investments that no longer align with your investment strategy or have strayed from their original purpose (Stock no longer holds your confide...
Read more