Hi All,
I've been a lurker on this board for many years now but have not have the courage to participate.
Saul always advised that anyone can do it. So I'm exposing my lack for the better word in the hope
of eventually learning how to fish on my own.
Based on KB revised, part 2 #17775 I'm doing one for AYX
Revenue:
2016 18.3 19.9 22.5 24.9 = 85.6
2017 28.5 30.3 34.2 38.6 = 131.6
2018 38.4 46.8 54.2 54.2*= 193.6 (*conservative assumption same as Q3)
Non-GAAP Gross Profit
2016 14.5 16.2 18.4 20.7 = 69.8
2017 23.9 25.4 29.3 32.9 = 111.5
2018 38.4 42.2 49.1 49.1*= 178.8 (*conservative assumption same as Q3)
Non-GAAP Diluted Net Income (loss) per share
2016 (0.24) (0.28) (0.18) (0.25)
2017 (0.22) (0.12) (0.06) (0.03)
2018 (0.09) (0.09) 0.08
Dollar Based Net Retention Rate (no 2016 on AYX website)
2017 133% 134% 133% 131%
2018 132% 131% 131%
Clearly this stock meets and exceeds Saul's criteria in post #43965.
I wanted to learn how to determine if the price I pay when I buy this stock is cheap, reasonably priced,
or wildly priced and where Saul's graphing #17776 comes in handy.
This is where I'm stuck!
Like Saul I prefer to do this manually on all my holdings and would greatly appreciate walking me on the
process with example values that I can trace in yahoo so I can graph it myself.
Thank you all for the help. Thank you Saul for your generosity.
Eddie
35 Likes
https://drive.google.com/file/d/0B13mmqYv8FNKSEZrVndHTkcxT1k…
Eddie,
About the charts. I’m not sure what charts, if any, Saul uses today. I’m hoping the above link works that shows examples of the old charts Saul was using.
These charts were used for companies with earnings on an EPS basis so I’ll start there and then talk about what could be used for valuing on a P/S basis.
What you are seeing is a semi-log chart with TTM EPS on the left axis and price on the right axis. The horizontal axis is time where each unit represents one month. Every three months you see a point on the graph representing TTM EPS that quarter and lines connecting those points. The steeper the line the faster the EPS growth (and vice versa).
The low, high and closing prices for each month are depicted with the vertical bars (close is the horizontal mark).
Finally, prices falling above the EPS point or line had a PE greater than 20 (vice versa).
The same thing could be done for companies without earnings primarily valued on a P/S basis. Here revenues would be on the left vertical access and market cap would be on the right. The x-axis would stay the same. However, the market cap would take the place of price for the vertical bars and would take a bit of additional calculating.
Not sure of the basis. Maybe a 15 P/S would be a good basis? The range for the left y-axis would run from $100M to $1,000M before a new chart would need to be started going from $1,000M to $10,000M.
Might be interesting to look at some charts like this. They are a good reference tool for quickly checking on valuations, and once they are built, are relatively quick to update.
A.J.
5 Likes
Hi Eddie.
“I wanted to learn how to determine if the price I pay when I buy this stock is cheap, reasonably priced, or wildly priced…”
I think you’ll get a lot of different answers from different people. I am speaking for myself here, not for Saul or for TMF itself (I am an independent contractor, not an employee).
I like to create a spreadsheet where one tab holds historical stock prices, going back about four years (I use 1,000 days). In another tab, I track various financial metrics that MIGHT drive stock prices. These are things like sales, GAAP earnings, adjusted earnings, operating cash flow, free cash flow, and EBITDA. For each day that I have a closing price, I calculate the ratio that the price implies, based on the sales (earnings, etc) that were publicly known on that day. This results in a data base of historical ratios. Let’s say you’re looking at a company and you know that the current PE ratio is 25.73x. Is that good or bad? Well, a lot depends on industry and the company’s growth rate. But I can look in my spreadsheet and see what the range has been for the past four years. If the range is from 18x-26x, that tells you one thing about the current value of 25.73x. If the range is 24x-37x, that tells a different story. If the range is 23x-29x, you get a third message.
What I’ll often do is try to determine which ratio(s) send(s) the strongest statistical signal, and pay the most attention to that/those. I don’t want to start a GAAP v. non-GAAP war here… Although I generally favor GAAP, there are some companies I follow where I completely ignore GAAP earnings because the signal that the GAAP-based PE ratio sends approximates the signal of a random number! For a couple of companies I’ve invested in, the strongest signal was sent by EV/EBITDA, which is a little tough to shoehorn into the spreadsheet, but can be made to work.
The biggest problems with this approach are (1) this is entirely backwards-looking and markets are forwards-looking, and (2) companies can change over time. A new product or an acquisition might render older ratios useless. Another issue that sometimes comes up – and this would certainly be the case for AYX – is that recent IPOs don’t have four years of trading history.
I’m happy to answer any questions about this approach, but please recognize that we’re a little off topic here compared to what Saul prefers… I’m pretty sure that there are services available where one can chart, say, a company’s PE ratio rather than its stock price. But so far I’ve chosen not to pay for anything like that.
I hope this helps!
Fool on!
Thanks and best wishes,
TMFDatabaseBob
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth
Please note: I am not a member of any newsletter team. My opinions are my own and do not necessarily reflect those of the TMF advisers. I am not an investment professional, merely an investor.
10 Likes
Thank you guys!
@TMFDatabaseBob I think as a newbie, your technique is way over my head at this point. Although I would love to know where to get the metrics you mentioned “sales, GAAP earnings, adjusted earnings, operating cash flow, free cash flow, and EBITDA”, particularly adjusted earnings as I thought this is the same as non-GAAP profit. Are they not? If not how can we get adjusted earnings? Note that I’m getting my information from the company IR website.
Would EV also be there? (EV = market value of common stock + market value of preferred equity + market value of debt + minority interest - cash and investments.) Will this information be on the 10-Q?
@Phoolio18, in this case, how can I determine if I want to add, increase my stake on a specific stock if the price is cheap, reasonably priced, or wildly priced? I can see that Saul keeps adding even with the price increasing but I can’t work out how he determines if this is still within the acceptable price range.
Eddie
Hi Eddie, You might take a look at “How I Pick a Stock to Invest In” on the right panel of this post under Announcements.
Best,
Saul
5 Likes
Hi Eddie. I think the only really difficult part of my analysis is determining which ratios send the strongest signals. If you go to Yahoo! Finance’s homepage for any stock, you’ll see a tab for “historical data”. Go there, adjust the date range to your liking, and click “download data”. Boom! There’s the start of the first tab in your spreadsheet. You’re right on target with sources for the second tab: earnings press releases on the IR website and SEC filings.
Yes, I use “adjusted earnings” and “non-GAAP earnings” pretty interchangeably. The potentially worrisome issue is that there’s no standard definition of how to adjust GAAP, so choices of what to adjust differ from company to company. However, most companies (if not all) will present a “reconciliation” so you can see what is being added and removed. With experience, you can decide whether the adjustments are being made to present the business more accurately, or more generously. Having faith that management is acting in your best interests is important in investing, and how they adjust earnings is one clue to their integrity.
That’s a solid definition of EV. Some people short-cut it by omitting preferred equity and minority interest (which usually works, because the omitted items are infrequently present). You can find all of the inputs you’ll need in the 10-K or 10-Q, except for the “market value”-oriented ones. If you can get good market value data for debt and preferred equity elsewhere, great. If not, I’ll just use the information from the balance sheet and call it good for a quarter – they’re usually not such a significant component of EV anyway. For market value of common stock, I’m trying to ascertain the number of outstanding shares at the point in time of the end of the reporting period, and then use that and the stock price to calculate market value.
I don’t want to put words in Phoolio18’s or Saul’s mouths, but I think you’ve identified a key learning to be gleaned from this board. My suggestion would be to study Saul’s monthly reports (and the occasional interim update), where he often explains why he made the changes he made. Look for common themes and patterns. When you have solid questions, ask Saul! I know there are several participants on this board who are executing very Saul-like strategies successfully, so it can be done if it is within your temperament to do so. My temperament is such that I can’t mimic what Saul does and sleep at night. But that doesn’t mean that I can’t study and learn and improve my returns by adding Saul-like strategies within my comfort level.
I hope this response was helpful. For a self-proclaimed newbie, I think you’re definitely on the right track!
Fool on!
Thanks and best wishes,
TMFDatabaseBob
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth
Please note: I am not a member of any newsletter team. My opinions are my own and do not necessarily reflect those of the TMF advisers. I am not an investment professional, merely an investor.
17 Likes