Comments on Shyam's Column: Hunting for value in stocks

Shyam, thanks for explaning this so clearly. Now,...

2009-12-29T16:52:48.077+05:30

Shyam, thanks for explaning this so clearly.

Now, how to i trigger a "SELL" based on this? for instance as of now EV for Kansai is much more than the breakeven value. So do we sell it?

Can you please explain the "SELL" criteria based on this logic

Thanks
Sam

Hi Shyam, It would be great if you can gi...

2009-09-18T10:27:33.171+05:30

Hi Shyam,
It would be great if you can give your ideas on financial planning for us. I have been regularly following Dhirendra kumar of valueresearchonline.com and his ideas on long term investing which is one of passive SIP investing in MFs.
i have a question regarding valuing a particular stock. as of today, Satyam has a market cap of Rs. 8000 crores and has equity capital/reserves of Rs.7300. although it is obviously a bargain, is it right to look at these numbers after the merger with Tech Mahindra. you always insisted on not looking at stand-alone companies while calculating RoC.
Can we ever trust the balance sheet coming from Satyam?

Sir, Were you able to get the formula in computin...

2009-09-15T22:27:25.662+05:30

Sir,

Were you able to get the formula in computing a bank's enterprise value? Could you have it posted on your blog? Thank you.

Vistahunt - I need to modify this formula for bank...

2009-07-20T14:49:51.022+05:30

Vistahunt - I need to modify this formula for banks & financial services firms (because these are unique organisations with extraordinary leverage) ...give me sometime and will post an update on this.

Shyam, Very good article. But is it possible to a...

2009-07-15T19:04:46.121+05:30

Shyam,

Very good article. But is it possible to apply this method to Banks?

How to find Enterprise value of a Bank-
EV ( Bank) = Market cap + borrowings

whether th above equation will work? Please reply. You can mail me at vistahunt@gmail.com

This is quite a while after this column appeared, ...

2009-07-05T17:26:59.582+05:30

This is quite a while after this column appeared, so I hope it'll come to yr notice.
You said it's better to get Bal.Sh and P&L stts from the company web-sites, as sites like moneycontrol give 'standalone' results. Could you confirm for us unitiated whether this is a reference to subsidiary cos held by the parent co under evaluation, such sub.co results being included in the stts on the co web-site but not on business sites such as MC or Way2Wealth. If not so, what exactly is meant by standalone?
KGR - kgopalrao@rediffmail.com

If you're gonna try (an xl sheet for co. evaluatio...

2009-06-02T21:51:07.175+05:30

If you're gonna try (an xl sheet for co. evaluation), I take it it even you dont have a ready programme, and have to do it manually step by step. Strikes me a tedious and time-consuming exercise. Is there no aid at all to the process?

May I put a Q on the daily share mkt that I have never understood. There are His and Los which never get reflected in trades even if one's orders have been placed online the previous day. When one checks the intra-day graph, these Hi/lo levels do not figure. Evidently there are huge spikes at the start of the day (Hi or Lo), after which these Hi/Lo levels do play any part in the days trend. How do such unnatural Hi/Lo figures occur?

Just one more. The official close for the day is not the last traded price at 1530, but the fixed post-closing session price between 1550-1600. How is this set, and isn't this an artificial figure, not determined by market forces? If you agree, would it not distort all analyses?

Srikant - i agree. but what can I say - i am a con...

2009-06-02T17:32:45.711+05:30

Srikant - i agree. but what can I say - i am a conservative investor and hate to undergo permanent loss of capital.

saravanan - by standalone i mean the income from subsidiaries don't get reported

you can get past annual reports from www.reportjunction.com

KGR - thanks. will try.

ehealth - congrats! but don't get used to such instant returns.

Hi Shyam You back of the envelope actually proved...

2009-06-02T15:33:19.550+05:30

Hi Shyam
You back of the envelope actually proved true, Kanasi Nerolac was the top gainer at BSE today with a 20% change in one single day...WOW you are a Genius !

I remember e-mailing you some time back, perhaps j...

2009-05-30T16:38:10.122+05:30

I remember e-mailing you some time back, perhaps just after the 'Buffet Way' article, suggesting that the nuts and bolts of how to do it need to be explained. Is this series by any chnce a result of that? If so, 3 cheers for me, if not, no matter, it's a very informative series for neophytes like me and many others.

One Q, are there, or have u developed, spreadsheet programmes for doing such an evaluation? Would be very useful, dont u think, so if the answer is 'no' why not make that yr next big effort?
K.G. Rao - email:kgopalrao@rediffmail.com

Sir, Your articles are very useful to me. I have ...

2009-05-25T19:19:24.605+05:30

Sir,

Your articles are very useful to me. I have few queries.

1. You mentioned that If we use Money control, it shows the reports of Stand alone companies. What do you mean by Stand alone companies?

2. I am not able to find Annual reports of companies for teh last 5 years. only 2006-07 & 2007-08 are availble. Even for Nerolac, it is not available for before 2006-07. How did you find the data from Nerolac ?

Pl. help me.

REgards,

Saravanan

Such a valuable Post ... Simple, lucid and easy to...

2009-05-11T18:24:30.899+05:30

Such a valuable Post ... Simple, lucid and easy to follow...

Pls..keep up your blog rolling with such a great posts Sir....

Hi Shyam, Wonderful step by step approach to valu...

2009-05-10T12:42:16.917+05:30

Hi Shyam,

Wonderful step by step approach to value investing! Thanks for that :-)..just on a critical note though- would you agree that we may lose out on growth stories (stocks)if we use this formula.was looking at Bharti Airtel- 5 years back it had ROCE of <1%. I would not have even looked it using the formula.Not to undermine what you have explained, Shyam- your article has truely been an eye opener.Thanks a ton!

Manish, Mahesh - thanks. do let me know how it wor...

2009-05-10T00:27:53.200+05:30

Manish, Mahesh - thanks. do let me know how it works.

Anonymous - good point and that is indeed a handicap. companies disclose their balance sheet only once a yr.

Income.portfolio - I dont think you have understood the methodology described. The 'fair value' guideline is on the right hand side of the equation (the 5 year breakeven formula)and uses return on capital (which by the way requires "earnings" for calculation). On the left hand side we have EV (enterprise value) and that includes market value to find out if the "market value" is less than "fair value" guideline. Essentially you are checking if EV is at significant discount to 'fair value' for a stock with atleast 20%-25% average ROC track record (which indicates 'good' stock at 'cheap' price), to make your purchase decision.

other clarifications:
1. nowhere have I said EV is "fair value" (in fact we are checking if EV is less than "fair value")

2. "earnings" IS being used , just not plainly as earnings but in the form of "return on capital"

P.S. If you do the workings you'll realize that companies that satisfy the equation must have low PE (meaning you don't overpay in a bubble situation) , so your hypothetical case of PE > 30 does not hold true.

Shyam, Interesting approach to calculate value. d...

2009-05-08T01:53:04.574+05:30

Shyam,

Interesting approach to calculate value. determining Enterprise value is includes "market capitalization". I have a difference of opinion on any valuation measure that includes "market capitalization".

enterprise value as a function of market price has weak rationale. Market Pricing can be used as comparison metric to determine whether current pricing is high or low. But if is used to determine fair value, i believe it distorts the fair value calculation.

if we look at mid year 2008 pricing, valuation will come pretty high. Because both valuations, i.e. current and average, were higher in short term. It gets distorted by using only 5 year average.

valuations in 2008 very going above 30PE ratios. With this method, it indirectly justifies that higher valuation is acceptable because markets say so. It does not question the fact that market may be in bubble. paying 30PE is just nuts. any value investor will not like it.

my viewpoint is, any fair valuation should consider earnings per share (past and presents). Capability of an organization to generate earnings is what we are all after?

Very good article. Thanks a lot for writing this. ...

2009-05-07T12:02:30.043+05:30

Very good article. Thanks a lot for writing this.
One doubt though. While calculating "Enterprise value = Market capitalization + value of preference shares if any + Debt capital", how do we know of Debt capital, at that point of time?
May be the company have taken a huge loan, lately. Will that detail be available from company website?

Thank you,
Ravikumar

HI Great sir, Now am able to understand, because ...

2009-05-06T09:17:04.928+05:30

HI

Great sir, Now am able to understand, because you have provided an example, i wish, i will be in a position to calculate for many other companies soon.

Thanks for your good work and keep going....

Mahesh

My God !! hats off !! So simply you have explain...

2009-05-05T23:33:23.252+05:30

My God !! hats off !!

So simply you have explained the formula for making money . You strength is simplicity . I am going to follow the process and find out some good stocks for myself and my readers on my blog .

Manish
http://www.jagoinvestor.com