Which Stock to Buy? A Quantitative Analysis
Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Fundamental
Forum Discription: Discuss the operations and finances of any of your companies.Make the other participants aware on the investment opportunities available in a stock on PE free cash flow etc
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=2929
Printed Date: 15/Apr/2025 at 6:50am
Topic: Which Stock to Buy? A Quantitative Analysis
Posted By: smartcat
Subject: Which Stock to Buy? A Quantitative Analysis
Date Posted: 15/Aug/2010 at 4:13pm
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Jahapanah Basant Maharaj has created TheEquityDesk XI, a set of 11 stocks which has the potential to grow at a good pace over a period of time. My analysis is an attempt to rank the 11 stocks and help an investor decide which among the lot is the best and the worst stock to invest at the current market prices. Basically, this is a quantitative analysis of a set of stocks, based purely on their fundamentals. I'm only using the TED XI as an example - this methodology can be used on any portfolio to determine the best and the worst.
All the 11 stocks will be analysed based on -
P/E Ratio Basically, we will be looking at parameters typically used by both "growth" and "value" investors. Ranking Methodology: - All the 11 stocks are ranked based on each parameter - say P/E Ratio to begin with. A stock with the lowest P/E Ratio gets the highest 11 points, while a stock with the highest P/E Ratio gets the lowest 1 point. - Similarly, for other parameters like RoE, marketcap etc, each stock is awarded between 1 points and 11 points depending on where it stands compared to eachother. - The scores are added at the end, and the stocks are ranked from 1 to 11. Might not make much sense now, but as we go along, you'll know what I mean. Flaw in the Methodology: Looks into the past rather than the future to rank the stocks.
Obviously, lower the P/E ratio, the better. Since there are 11 stocks in the portfolio, the stock with the lowest P/E Ratio gets 11 points while the stock with the highest P/E ratio gets 1 point.
Voltamp is the cheapest stock of the lot and hence gets rewarded with the maximum 11 points. Meanwhile, Thermax had a loss making quarter recently, and hence its P/E is extremely high. It is appropriately penalized with just 1 point awarded to it in this round. The rest of the stocks get 10, 9, 8 etc points in descending order based on their current P/E.
ROUND NO. 2 - RETURN ON EQUITY
Higher the RoE, better is the stock for investment. The stock with the highest RoE gets 11 points and the stock with the lowest RoE gets 1 point in this round.
To find out the stock with the best combination of low P/E and high RoE, we add the points earned by each stock in the P/E round and the RoE round.
Ranking of stocks with the best combination of low P/E & high RoE -
For now, the best stock to buy is Hawkins and the worst to own now is Thermax. But the contest is not over yet. We add the scores earned by each stock in market cap, sales growth, profit growth, debt equity ratio and other rounds.
Coming up next - Round No. 3 - the Marketcap round.
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Replies:
Posted By: smartcat
Date Posted: 15/Aug/2010 at 5:14pm
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ROUND NO. 3 - THE MARKET CAP
It is almost always better from capital appreciation point of view to invest in stocks with low market cap. So, in this round, the lowest market cap stock gets the maximum while the stock with the highest market cap to get just 1 point. Expect the HDFC twins to be hit hard in this round.
ROUND NO. 4 - LAST 4 YEAR SALES CAGR
Sales growth rates are as important as profit growth rates, if not more. If a stock has a scorching bottomline growth and a dull topline growth, it probably implies that the going might not last long. Bottomline growing faster than topline can happen because of improving margins, for example. But there is only a limit up to which you can increase margins - after that, the bottomline growth will align with the topline growth.
So in this round, we reward companies with high topline growth and take away points from companies with lower sales growth rates.
ROUND NO. 5 - LAST 4 YEARS PROFIT CAGR
No need to explain the logic behind this round I suppose!
Now we add the scores again after 5 Rounds -
Ranking of stocks with the best combination of low P/E, high RoE, high sales & profit growth and low marketcap -
ANALYSIS:
- Hawkins tops each of the 5 rounds except for the rather crucial sales growth round.
- Although Zydus "looks expensive", it still seems to be among the best stock to buy if we consider the above 5 parameters.
- Thermax had an extraordinary expense (write off) in the last quarter of FY10. Our methodology punishes such a company, because at the end of the day, the market looks at the numbers on the table. Only the "perfect" companies are rewarded with higher rankings.
The contest isn't over yet - 5 more rounds to go, before we decide on the winners and the losers.
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Posted By: bearish
Date Posted: 15/Aug/2010 at 5:31pm
| Thank you for the post smatcat! very informative indeed. by this logic, im surprised to see bluestar up there.. |
Posted By: smartcat
Date Posted: 15/Aug/2010 at 5:34pm
| arey, its just the intermission. Watch out the climax of the movie with a twist ending. |
Posted By: rapidriser
Date Posted: 15/Aug/2010 at 6:08pm
Kya picture abhi baaki hai mere dost???
When will we get to see the post interval twisted climax part ? ------------- When all else is lost, the future still remains. - Christian Nestell Bovée |
Posted By: samirarora
Date Posted: 15/Aug/2010 at 6:13pm
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Very nice and am thoroughly enjoying the demonstation...goes well to understand various concepts too..Well done! ------------- |
Posted By: prabhakarkudva
Date Posted: 15/Aug/2010 at 8:23pm
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Amazing work smartcat,especially to compare companies to compute opportunity cost! Some suggestions if I may:
1.Instead of using ROE and payout in isolation use ROE(1 - payout ratio)which is what Basant Maharaj would like  .This will also put the ROE in the right perspective and may be Hawkins will lose out the numero uno position.
2.You can use the one year forward EPS and forward PE to eliminate total reliance on historical data. 3. Incidently the parameters you haven't yet computed are not as important as the first six as far as growth is concerned. 4. You could also add the management pedigree to this,although wouldn't make much difference to the TED XI rankings. Superwork! Waiting for the climax. ------------- Take your chances and keep them in a box until a quieter time. |
Posted By: nannu_68
Date Posted: 15/Aug/2010 at 8:57pm
Speechless  ------------- nannu |
Posted By: smartcat
Date Posted: 15/Aug/2010 at 9:46pm
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Hey, just kidding about the climax and the twist ending. Even I do not how the list/ranking will finally end up. Right now, I'm collecting the data for the stocks.
Data Sources:
Rediff Money
MoneyControl.com
RoE x (1 - dividend payout ratio)? What do we get from that?
Trailing P/E is a fact. Forward P/E is mostly fiction
 . I intend to keep this a mathematical analysis which a software should be able to do. Also, forward P/E's are not available from research reports for stocks like Thangamayil Jewellery, Sumedha Fiscal & Jenburkt Pharma - those are names of stocks I own!
Unfortunately, one cannot quantify management pedigree in numbers. How about ranking promoters based on the number of times they got into trouble with SEBI/Law?
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Posted By: bihisello
Date Posted: 15/Aug/2010 at 10:27pm
Wah! Wah! |
Posted By: hit2710
Date Posted: 15/Aug/2010 at 12:41pm
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Thanks smartcat for coming out with some good data based investment model.
The flaw as I see in some of the rounds I see are esp in sales and profits cagr, companies with low base will outscore those with consistent profits.(this is just an observation and takes nothing away from a wonderful effort) But at a first glance, Hawkins and Zydus appear winners, even without going into too much details. The kitten seems to be providing you with sleepless nights with nothing to do but devise investment models. Positive change of fatherhood. ------------- Stockmarket is a weird place. For every person who buys a stock there is a person who sells it and both think they are very smart. |
Posted By: smartcat
Date Posted: 15/Aug/2010 at 12:55pm
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Good point! But all the data points (RoE, sales growth, div yield etc) have equal weightages in the calculation of final rankings. So even if a low base stock manages to top the list in sales & profit growth, its ranking at the top is not guaranteed - because it still has to perform better than the others in 8 other parameters.
Yes, zydus could do surprisingly well in this contest.
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Posted By: smartcat
Date Posted: 15/Aug/2010 at 1:49am
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ROUND NO. 6 - DIVIDEND YIELD
Most of time you keep hearing that high dividend yield stocks don't fall much in a crash. 2008 proved that the above line is mostly rubbish. However, a good dividend yield is a very important parameter.
- In large (in value terms, not number of stocks) portfolios, dividend from stocks is enough to take care of expenses. One doesn't need to sell stocks.
- A company which has grown its bottomline at a decent pace trading at a price offering a largish dividend yield (Eg: Hawkins, Ador Fontech etc) could signify a significant near term upside in the stock price.
ROUND NO. 7 - LAST 4 YEARS DIVIDEND PER SHARE CAGR
If a company is growing at 30% CAGR, there is a possibility of the stock price going nowhere - it automatically does not guarantee a large appreciation in stock price. But if a company is growing at 30% CAGR and if the dividend per share is growing at 30% CAGR, then there is a 100% guarantee that the stock price will appreciate (at almost a similar pace, but not exactly).
Because, if the stock price doesn't appreciate, and if the dividends keep rising, then the stock will soon be available at a dividend yield of 20%! Markets won't allow that to happen (Eg: hawkins).
ROUND NO. 8 - DIVIDEND PAYOUT RATIO
Dividend payout ratio is the percentage of profits that is paid out as dividends. That is, if a company has a profit of Rs. 100 cr and it paid out Rs. 30 cr as dividends, then its dividend payout ratio is 30%
Why look at this parameter? Simple. You will NEVER have a Satyam, Pyramid Saimira, Asian Electronics, HFCL or a Compact Disc in your portfolio if you invest in stocks which payout 15% plus of their profits as dividends.
Plus, a company that pays out a large percentage of profits as dividends but still manages to grow its profits without taking on debt is a sign of an excellent company. That's why in the next round, we consider the debt/equity ratio too in our analysis.
Tallying the scores -
And so finally, this is the ranking of companies which offer the best compromise between low P/E, market cap and high RoE, sales/profit/dividend growth, dividend yield & payout ratio.
ANALYSIS:
- If you haven't noticed, Yes Bank paid out their maiden dividend in FY10.
- Although Thermax suffered a large loss (extra ordinary item) in 4QFY10, they still paid out 49% of their profits are dividends. One can read a lot into little moves like this.
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Posted By: basant
Date Posted: 15/Aug/2010 at 6:09am
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Brilliant! This original thesis is priceless. I have a similar model on an Excel sheet which I use for buying stocks but unlike rankings I have a base number on which I set up points to the stock. For example a company with a 60% RoE and a 11PE when compared with another company with a 20% RoE and a 10PE will get equal weightage which is not similar in terms of the companies in analysis ceteris paribas. But really outstanding work!!! Try working with the RoE (1- payout ratio) and if possible update the previous posts thugh I doubt if that will make a lot of difference to the analysis. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: paragdesai
Date Posted: 15/Aug/2010 at 8:16am
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Wonderful Analysis Smartcatji! Thanks. ------------- Luck is what happens when preparation meets opportunity .... |
Posted By: maaran
Date Posted: 15/Aug/2010 at 9:06am
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Ingenious !
This analysis apears to assume an equal weight on all the parameters considered . May I suggest we assign different weightage & see what a weighted sum throws up |
Posted By: venkym2000
Date Posted: 15/Aug/2010 at 9:18am
| SmartCat Sir Fantabulous. Does PEG needs to be included as one of theparameter? Thanks, Venkat |
Posted By: basant
Date Posted: 15/Aug/2010 at 9:25am
Wow! Knighthood for Smartcat  ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: smartcat
Date Posted: 15/Aug/2010 at 10:24am
Basant, you know these 11 stocks better than anybody else. It would be interesting to know your ranking of these 11 stocks based on your parameters (including subjective factors like management pedigree & future prospects) at current market prices. If it almost matches this quantitative mathematical model, then it would be amazing.
Your ranking should come out AFTER I'm done with the final 2 rounds (P/BV & Debt/Equity) though!
I don't think they matter much - because we are already considering RoE, div payout ratio, PE and growth rates.
Interesting thought. I think this quantitative model is flexible enough to accomodate that because of simplicity of assigning points (descending order) and simplicity of final ranking (just adding up the scores).
Now let's say your portfolio does NOT have any asset rich companies (like manufacturing, power or chemicals) or financials. Then you don't need to care much about the stock's P/BV ratio. So if you want to, you can half the weightage of P/BV and assign 5.5 points for the stock with the highest P/BV and 0.5 to the one with the lowest. Or you can do away with P/BV compeletely.
And if you want to stress more on P/E, you can assign twice the weightage to it (22 points for lowest P/E and 2 points for the highest).
However, I do not recommend that - I recommend equal weightage. Remember that here, we are comparing stocks on various parameters across different sectors. We could be comparing the RoE of a financial stock with the RoE of a FMCG company. But in the end, the process of simple addition of scores cancels all these anomalies - in my opinion.
LORD.
I would like to addressed as Lord Smartcat.
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Posted By: vishal412
Date Posted: 15/Aug/2010 at 10:44am
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Smartcat sir nice analysis about the stocks. I am a new investor and your analysis about these stocks are abosultly amazing. Thanks |
Posted By: manish_okhade
Date Posted: 15/Aug/2010 at 10:46am
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So Hawkins scores high on all parameters. I would like to add one more qualitative strong factor which seems to be missing in all others in TED XI.
Hawkins is recession proof business due to its simple product of core necessity. Its true that if sensex crahes due to any external factor then Hawkins would be thrashed too in tendem. But recovery will be definitly fast and outstanding, such collapse often leds to cheap availability of RM and since demand for Hawkins is generic so with same growth rate Hawkins gives outstanding results in down time and it will sure lead to fast restoration of stock price.
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Posted By: p_pandekar
Date Posted: 15/Aug/2010 at 11:05am
| Great work Lord SmartCat |
Posted By: basant
Date Posted: 15/Aug/2010 at 11:20am
Check PM. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: somu0915
Date Posted: 15/Aug/2010 at 11:31am
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Jahapanah.. Tussi great ho.. Tohfa kubul karo..  |
Posted By: Ashutosh
Date Posted: 15/Aug/2010 at 11:33am
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My lord ...this is a amazing piece of work and the way the strategy of giving ranking is done is amazing.
Never seen something like this earlier. The Name which you have choosen "SmartCat" is absolutely right. ------------- My tastes are simple: I am easily satisfied with the best |
Posted By: EquityInv
Date Posted: 15/Aug/2010 at 11:45am
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Amazing work smartcat!
Joel Greenblat does same thing but only based on his http://www.magicformulainvesting.com/welcome.html - magical formulae of 2 parameters. a) RoCE and b) Earnings Yield.
I think BM would consider 5*x rating for RoE and RoCE and 0.00005x to Div/yield. No doubt, Hawkins scores very high from all parameters here as well as magical formulae. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: prabhakarkudva
Date Posted: 15/Aug/2010 at 11:55am
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I was thinking if we could run this system as if we are in 2006-2007 and see how well the stocks that come up triumphs using the system have done in reality.I could do that once smartcat finishes his exercise. ------------- Take your chances and keep them in a box until a quieter time. |
Posted By: hardikp
Date Posted: 15/Aug/2010 at 11:56am
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Posted By: vinvestor2010
Date Posted: 15/Aug/2010 at 11:58am
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Smartcatji what is your opinion on using EV/EBIDTA as a replacement for PE ratio?
Also do you think that financial companies, utilities etc may be structurally different and may require sector specific adjustments? Amazing thread this is :-) |
Posted By: mano222
Date Posted: 16/Aug/2010 at 12:01pm
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Regarding market cap, please exercise caution especially for Hawkins which is operating in matured market and also market size it self can't be compared with other business. Also it is better if we consider promoter holdings as one criteria. |
Posted By: nitin_jagtap
Date Posted: 16/Aug/2010 at 12:12pm
The points weightage for Mcap IMO has to be revisisted , as an example at what Mcap would you say HAWKINS is high or low ..if the cookware industry size itself is 1000 crs and hawkins in 500 crs ..i wouldnt say its low mcap...on the other hand if cookware industry size is 10000 crs then hawkins has still a long way ahead. Same applies to almost all companies.
For that matter why does HDFC deserve such a high PE compared to Hawkins. I would think its because of the huge size in the HFC market itself and the visibility of that growth for next 10-12 years..same is reflectd in Mcap also.However when market size/opportunity isnt very clear or short term then PE would certainly be lower which would then lead to lower MCAP
Since we have used parameters based on histrorical data..betting that Mcap will grow big might not fit in this model. ------------- Warm REgards Nitin Jagtap |
Posted By: EquityInv
Date Posted: 16/Aug/2010 at 12:19pm
Very valid point! Scalability is one of the most important. But it's difficult to "predict" scalability of business and I think smartcat doesn't want to go into prediction and hence MCAP is taken for simplicity. Let me correct it.. scalability is some guess or detailed research or debates.. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: wild dog
Date Posted: 16/Aug/2010 at 12:32pm
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Great work smart cat, great analysis and an must read for all those interested in investment in stocks. Thanks a lot for sharing your views |
Posted By: Gnair
Date Posted: 16/Aug/2010 at 12:35pm
| great work smart cat...!!! great insights and methodology...! |
Posted By: brijwanth
Date Posted: 16/Aug/2010 at 12:37pm
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This is simply superb work by smartcat ji Market cap and scalability are difficult ones to analyse for each company so i think Market cap can be removed from analysis. Market cap is not controllable factor and is beyond the hands of the company. but anyways this ones the best  ------------- Past will not be repeated in future but peaks and troughs do revert to mean, period and order of those peaks, troughs and mean days is the one i.e. not predictable- riser3 valuations |
Posted By: vijayM
Date Posted: 16/Aug/2010 at 12:43pm
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Smartcat ji, Excellent work. I have one point. All parameters are given equal weightage in the analysis. We have to find if we can give higher weightage to some parameters. For Ex: titan is the best performing stock but not in top 5 needs to be looked at.
regards
vijayM ------------- If a business does well, the stock eventually follows:Warren Buffett |
Posted By: kulman
Date Posted: 16/Aug/2010 at 1:17pm
वाह बिरबल वाह ! |
Posted By: smartcat
Date Posted: 16/Aug/2010 at 1:27pm
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Thanks all. Will respond to your suggestions/comments later.
ROUND NO. 9 - P/BV RATIO
A value investor's favorite - might not be a useful ratio for all portfolios. If a stock trades at a P/BV of 1 or less, it means that you can recover the share price value by just selling the assets. P/BV is also used to value financial stocks.
The biggest flaw in P/BV metric is that "book value" does not include the value of a brand (For eg: Prestige, Sony, Maruti). So you will notice that branded companies will trade at a higher P/BV ratio than other manufacturing/asset owning companies.
I would consider P/BV as an optional metric to be used based on the type of stocks in the shortlist/portfolio.
ROUND NO. 10 - DEBT/EQUITY RATIO
This is where I admit that the methodology is not 100% logical - I might need some help here finetuning the methodology. Debt/Equity ratio shows how leveraged a company is. If you find a company with little or no debt growing at a good pace, you have almost got yourself a long term winner.
However, looking at the debt/equity ratio of banks/financials don't make much sense (because it will be high). But I'm still including this metric in our analysis because at the end of the day, we are looking at how sensitive a company/stock is to interest rate movements. Banks/financials by nature of their business are highly interest rate sensitive, so they deserve to be at the bottom of the pile.
Is that logical?
Tallying the final scores -
The ranking of stocks to buy in the TED XI at current market prices based on low P/E, P/BV, debt/equity ratio, marketcap and high RoE, sales/profit/dividend growth, div payout ratio & div yield goes something like this -
COMMENTS:
- This data needs to be updated every 3 months atleast. Because prices change and financials keep changing.
- Low base effect of certain stocks like Voltamp will be removed in next financial year when we take the last 4 year data.
- TED XI stocks are just an example. This is an attempt to justify buying a set of stocks from ANY shortlist.
- I intend to use this methodology to SELL stocks in my portfolio (get rid of the stocks in the bottom), rather than buy new stocks. The title of the thread can be changed to "Which Stock to Buy or Sell? A Quantitative Analysis" perhaps!
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Posted By: smartcat
Date Posted: 16/Aug/2010 at 1:49pm
Manish_Okhade, I suspect you will be quite pleased to know that eClerx will almost match the score of Hawkins if it were to be in TED XI. eClerx performs well in 9 out 10 parameters.
Oh yeah, he copied from me. He keeps giving missed call to my mobile all the time.
Go ahead. Data is available on Moneycontrol & Rediff Money.
EV/EBIDTA is mostly used for loss making companies right? I keep hearing from EV/EBIDTA for companies like GMR from research reports. Anyway, EV/EBIDTA number for each stock is not easily available from financial websites.
Let's say cookware industry is worth Rs. 1000 cr and Hawkins' MCap is Rs. 500 cr. Then obviously, Hawkins will not be able to grow its topline and bottomline much in the next financial year. And when we start ranking the stocks next year, it will show up with as a cascading effect on DPS growth. The company might then expand into other segments by taking on debt. This will again show up in debt/equity ratio, dividend payout ratio, RoE etc.
So eventually, since we are considering 10 different parameters and updating the stats every 3 months, the "marketsize/marketcap" issue will be automatically sorted out by the ranking system.
Right. Scalability/marketsize cannot be determined for each stock listed in the stockexchange. Remember that we are not trying to analyze TED XI stocks - we are trying to rank any set of stocks in a shortlist or a portfolio.
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Posted By: tigershark
Date Posted: 16/Aug/2010 at 2:07pm
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i would request smartcat to add another column titled management quality and integrity based on past descion making.this would complete a really fantastic analysis, because of which you have been blessed by a son.
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |
Posted By: prabhakarkudva
Date Posted: 16/Aug/2010 at 2:42pm
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I added the sustainable growth filter:ROE(1- payout) to the above and assigned a weight-age of 2 to this filter.The final rankings changed as follows: 1. Hawkins 2. Zydus 3. Bluestar 4. Voltamp 5. Voltas 6. Page 7. Titan 8. Yes Bank 9. HDFC 10.HDFC Bank 11.Thermax I personally feel Zydus,Page and Titan will outperform in that order because there is still scope for ROE expansion in these companies. Would be interesting to see how Basantji's list comes up. ------------- Take your chances and keep them in a box until a quieter time. |
Posted By: deepinsight
Date Posted: 16/Aug/2010 at 2:54pm
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Smartcat:
Have you applied these screens to your own holdings? Am curious of the results.
Also, what inference are you making from a company that ranks high? ------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: nitin_jagtap
Date Posted: 16/Aug/2010 at 3:16pm
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There are three closely related parameters which are all related to the dividend
Dividend Yield
Last 4 Years CAGR dividend per share growth Dividend Payout Ratio I think it would be better to focus on just the div payout ratio and dividend yield , note that as the company passes through various stages the payout varies and in effect so does the dividend CAGR.
We could also possibly give some weightages to RoCE , Cash flow ------------- Warm REgards Nitin Jagtap |
Posted By: smartcat
Date Posted: 16/Aug/2010 at 4:00pm
Are you sure you want me to do that? I will probably assign top marks to Ambanis, Adanis, Biyanis, Chaturvedis & Gaurs.
Are you good at MS Excel? If you could create some kind of Excel sheet template where one could add a parameter (like RoCE) and assign a weightage (2x), that would be useful!
RoCE data is available from Rediff Money. Cash flow is a number (like Rs. 30 cr) and so cannot be used directly. Price to Cash flow can be used - but you need to calculate it yourself. Not many financial websites publish this.
Yes. And the idea was to think of a better way to remove stocks from my portfolio (and not just remove stocks with high P/E) as it appreciates in value.
Since there are 79 stocks in my portfolio, top stock gets 79 points and the bottom stock gets 1 point in each of the parameter. Adding up the scores, the final ranking of my portfolio looks something like this -
So stocks at the bottom of the list go out of my portfolio first.
I do not have too much confidence in Navin Flourine (list topper), for example. At the end of the day, one still needs to use one's judgment about each company.
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Posted By: chimak10
Date Posted: 16/Aug/2010 at 4:12pm
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So smartcat which of this ranked company made you the most money
Do you see any relation with the rank like say okay 10th ranked stock gave me more return then 20th ranked stock. |
Posted By: karn
Date Posted: 16/Aug/2010 at 4:21pm
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A Job well done Smartcat. I have started using similar valuation method. In addition I also try to see following equation.
(RoCE+Div. Yeild)/P2E>=2 The same thing could be also used with RoE and RoIC. Regards, K. ------------- “Invert, always invert.” |
Posted By: hawakeye
Date Posted: 16/Aug/2010 at 4:26pm
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Posted By: karn
Date Posted: 16/Aug/2010 at 4:34pm
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In addition one needs to give certain premium for those company who do branding advert and promotion. These things increase MOAT and recognition and yet shown at expense side. For example companies like Titan, Page etc should be given extra premium compared to Voltamp.
Regards, K. ------------- “Invert, always invert.” |
Posted By: CHINKI
Date Posted: 16/Aug/2010 at 4:45pm
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Smartcat wonderful job.
Those of you who are suggesting very good and innovative ideas after smartcat has done this, I suggest you people can do that and post it in the TED. I don't know why people are posting that this parameter is to be considered and so on. No one is preventing any one from doing that. For the benefit of everyone and to make your point more clearer, it is better that any new parameter or changes to the existing parameter can be done for the stocks mentioned and post it in the thread. The way messages are getting posted since morning in this thread, it looks like smartcat had more problems (time consuming)answering them rather than while making that table. ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: smartcat
Date Posted: 16/Aug/2010 at 5:11pm
My top 10 money making stocks (Rupee value appreciation, not percentage) are -
Zydus
eClerx
HSIL
Hawkins
TTK Prestige
Sumedha Fiscal
Uflex
Jenburkt Pharma
Ador Fontech
Page Industries
The ranking gives you an idea about stocks which has the possibility of giving more returns than others, at current prices.
Eg: HSIL is currently ranked 78th in my list, and I intend to sell it off soon. But note that it has given me the 3rd highest returns in my portfolio. Meanwhile, IL&FS Investment Managers has given me 6% appreciation so far. But I it is ranked 3rd in my list - so I intend to hold it for a long time.
Basically, the ranking gives you an idea about undervalued and overvalued stocks in the portfolio, at current market prices.
Karn, explain a bit more. What can we infer from this particular metric?
True. See, I'm giving unusually high importance to dividends - that might not be palatable to everybody. But, if you feel a particular parameter is relevant, you can get the data and use it.
The scoring system based on number of stocks, descending order of assigning points and the final addition works well for any number of fundamental parameters.
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Posted By: karn
Date Posted: 16/Aug/2010 at 5:33pm
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Smartcat,
It would be difficult to grow at higher rate than RoCE without incurring debt. RoCE can be substituted by any other parameter which depict growth. Broadly speaking a company growing at 10% with P/E of 10% will take 10 years to return invested capital. So if the assumed growth is double than P2E your time period is reduced to 5years. I usually like doing calculations of every kind for 5 years. Its difficult for me to do scenario building for more than 5 years, hence >=2 concept. Regards, K. ------------- “Invert, always invert.” |
Posted By: bearish
Date Posted: 16/Aug/2010 at 5:35pm
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Posted By: Gurdial
Date Posted: 16/Aug/2010 at 6:07pm
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Excellent analysis.
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Posted By: aniljain
Date Posted: 16/Aug/2010 at 6:24pm
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Very good analysis |
Posted By: tigershark
Date Posted: 16/Aug/2010 at 9:37pm
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smartcat here is what i meant, 1-Bhasker Bhat 2-Aditya Puri 3-Genomals 4-pankaj patel 5- keiki mistry 6-advani 7-Meher pudumjee 8-tatas(voltas) 9-Brahma 10-yes bank 11-voltamp this is my personal list,based on the ability of the mgmntto run the business both during good times and badtimes.roe/roce and pe can all change based on mgmnt descisions.an oustanding mgmnt generally delivers an oustanding business and if identified early in its life cycle becomes an outstanding stock.boarders are free to debate on which mgmnt is betterand why
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |
Posted By: maaran
Date Posted: 16/Aug/2010 at 10:03pm
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I re-read the subject line "Quantitative Analysis". Discussing weightage,management,moat,other subjective issues are not part of the scope, I guess. Yet numbers alone do reveal important parts of the story ! |
Posted By: drnelogal
Date Posted: 16/Aug/2010 at 11:38pm
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fantastic !Congratulations!!!! Mr. Smart cat.Difficult to bell this cat!!
Sir , Worth reading and for reference.Many thanks once again.
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Posted By: valuepicks
Date Posted: 16/Aug/2010 at 12:05pm
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smartcatji,
I was thrilled to read through the model that you devised. While everyone of us might be looking into all those factors, I guess, your model of bringing them together into one simple ranking style is unbeatable, unique and profound in application.
Congratulations on this achievement and thanks a ton in helping innumerous investors around here.
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Posted By: MR TED
Date Posted: 16/Aug/2010 at 12:21pm
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Smartcatji, its a great effort. It must have taken a long time for data gathering and analysis. Thanks for your efforts! More than this, I am very much impressed by the companies in your portfolio. I have not heard the names of most of them. Why I am saying impressed is because, I feel more than all the analysis, important is the subject matter which u r analyzing and investing ur time and money in. Can u please share how u got hold of m ost of them? Where u heard of them first? In short, there are thousands of stocks to analyze in the market. How to get those few on which we should actually do in depth analysis like this? Basantji, ur thoughts will be highly appreciated, because in a concentrated portfolio, how u reached on those 4-5? |
Posted By: smartcat
Date Posted: 16/Aug/2010 at 12:40pm
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Thanks all. I'm glad to see lots of new TED members (wouldn't call them newbie investors - some of them could be my baap when it comes to investing) with less than 5 posts making a comment here.
For buying a stock, I only look at the following parameters -
- Sales Growth
- Dividend Yield
- Consistency in profit growth (no 20 or 30% fall in earnings in any year)
- Consistency in paying dividends every year, preferably with an increasing trend
- Dividend payout ratio of 15% or more.
That's just half the story though. Do check out the last 10 or 15 pages of my portfolio thread.
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Posted By: rahulkrishna
Date Posted: 16/Aug/2010 at 1:52am
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What a lucid explaination by this Genius !!
If things are expressed in such simple way , then they become more appealing ..
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Posted By: basant
Date Posted: 16/Aug/2010 at 6:13am
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As on date out of the four most active TED stocks my list stands as: 1) Hawkins 2) Zydus Wellness 3) Page Industries and 4) Titan, Even though my excel sheet is number based I do make qualitative adjustments for management, business etc etc. I have been using this sheet since the last several years and have dependent on it for assigning portfolio weightages, entries and exits from stock(s). I talked about this sheet here: http://www.theequitydesk.com/forum/forum_posts.asp?TID=177&KW=excel&FID=42&PR=3&PID=797#797
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: shivkumar
Date Posted: 16/Aug/2010 at 10:25am
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Basant, Does the data update automatically from some website or do you need to manually fill in inputs? |
Posted By: basant
Date Posted: 16/Aug/2010 at 10:42am
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At the moment manually. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: j2eeprofessiona
Date Posted: 17/Aug/2010 at 3:49pm
u know its (updating prices real time) easy and fun. try it... its fun watching ur excel sheet update automatically (from NSE)... |
Posted By: LearningToFly
Date Posted: 17/Aug/2010 at 4:35pm
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Can you please tell me how to do this
------------- Success... at all cost. |
Posted By: smart_vision
Date Posted: 17/Aug/2010 at 9:32pm
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Smartcat,
Speechless.........
 , But Few wordsThanks for the analysis, for a newbie like me it does wonders. This post makes me feel even more comfortable to my decision to join the TED. ------------- Stay hungry stay foolish |
Posted By: vijayM
Date Posted: 17/Aug/2010 at 11:04pm
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Basant Sir,
Is it possible to automate most of it & display TEDXI in the order of preference like smartcat has done? ------------- If a business does well, the stock eventually follows:Warren Buffett |
Posted By: jadeja17
Date Posted: 17/Aug/2010 at 12:53pm
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this thread makes for a pleasant change from reading constantly from threads on titan , page, hawkins etc which seem to be the obsession on the forum. I wish more such eye popping posts and threads come up (instead of posts containing presssure cooker whistles and such things wasting a lot of space) which concentrate on fundamentals and parameters useful in judging companies rather than prices and highs created by individual stocks. |
Posted By: rajeshn07
Date Posted: 17/Aug/2010 at 8:20am
Nice work. But not having confidence in you list topper? There is some disconnect between your analysis and conviction ? |
Posted By: basant
Date Posted: 17/Aug/2010 at 8:35am
No, do not want to make that public. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: vijayM
Date Posted: 17/Aug/2010 at 11:13am
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I don't think it is possible to quantify everything, like management quality etc. Moreover equal weightage to all parameters is something that is not correct in the proposed analysis. for ex: a good dividend yield may not be good since it implies management does not know how to utilize reserves. BV may not be suitable for all stocks, P/E ratio may not be good for real estate and so on.
------------- If a business does well, the stock eventually follows:Warren Buffett |
Posted By: smartcat
Date Posted: 17/Aug/2010 at 11:41am
haha good one!
A car might have a top speed of 160 kmph. It could do 0 - 100 kmph in 12 seconds. It could have the biggest boot, large number of gadgets and good rear space. And hey, it could be the least expensive car and have the highest fuel economy too.
But that does not automatically make it the best car to buy.
You still need to sit in car and see how comfortable the ride comfort is. You still need to like the looks of the car and the interior quality. The engine should feel refined and the gearshift should be smooth. And yes, you still need to consider how good the service network is before you decide on the best car. The mathematical model is just a guide to help one decide. According to me, it does about 75% of the job of finding the best and the worst stock to buy at current market prices, in a given set of stocks.
The idea is to reward companies (with points) which payout large dividends but still manage to grow at 50 or 60% CAGR. That goes against the usual old school belief that all dividend yield stocks are slow growers.
Agree on P/BV.
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Posted By: vijayM
Date Posted: 17/Aug/2010 at 11:45am
 ------------- If a business does well, the stock eventually follows:Warren Buffett |
Posted By: somya
Date Posted: 18/Aug/2010 at 1:10pm
| When the next part will be launched smartcat....m waiting for that |
Posted By: smartcat
Date Posted: 18/Aug/2010 at 1:24pm
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What next part? Picchar Katam Ho Gayi.
I'm thinking of a sequel though. One could include other parameters like -
- Sustainable growth rate
- Price to Cash Flow ratio
- Net profit margins
- Current financial year's sales & profit growth (quarterly for now, half yearly in another 3 months, 9 month data after december etc).
Adding these parameters could give more accurate results. But I'll leave it for somebody else to do it - I'm currently busy with ranking the stocks in my own XXL sized portfolio.
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Posted By: somya
Date Posted: 18/Aug/2010 at 1:39pm
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Ya just now i saw that......gr8 job......apart from these technical or number analysis i suppose company's business model , future plans, Product and services tells a lot about any particular company's stock...
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Posted By: Shadofax
Date Posted: 18/Aug/2010 at 2:27pm
I dont know how i missed this post. Great work 'Lord Smart Cat' 
------------- $ |
Posted By: siddharthshukla
Date Posted: 18/Aug/2010 at 7:48pm
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When you already have simpler formula i.e Greenblatt's Magic formula with just 2 parameters P/E & ROE why do you need additional criteria which complicates things as it may not be suitable across industries. If you use just ROE & P/E you get almost similar results : 1. Hawkins 2. Bluestar 3. Voltas 4. Voltamp 5. Page Industries 6. Zydus Wellness I am also surprised at the neglect towards P/BV which i believe is an important Valuation metric (Buffett uses a graph of BV growth in all his annual letters). A simple way to look at it is to compare ROE to P/BV . a company with high ROE should trade at a higher P/BV multiple(it helps to compare RoE to Govt bond yield). So a debt free company with ROE twice of Govt bond yield should idelally trade at 2x BV. SO in short a high ROE low P/BV stock could mean cheapness or value kjust like Low p/E high ROE in case of magic formula. Also for companies having Debt we must look at EV/EBIT & ROCE instead of ROE. |
Posted By: smartcat
Date Posted: 18/Aug/2010 at 1:15am
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I personally do not see any similarity as such. Moreover, if I apply "magic formula" on my 79 stock portfolio (large sample size basically), the final ranking doesn't make as much sense as the 10-parameter quantitative ranking.
But really, there is no "correct" ranking of stocks. It cannot be "proved" that Hawkins is the best stock to buy HDFC Bank is the worst stock to buy. So Greenblatt's Magic formula can also be used - but you should find it logical. You should not use it just because a book has been written on it and 23% CAGR has been obtained by him in US markets.
P/BV enters the fray in Round No. 9
This is not an attempt to compare or correctly value (as defined by investment books) companies with debt. Nor are we trying to compare stocks within a sector. Having lot of debt itself is a considered a negative in the ranking system - as that makes the company's financials sensitive to interest rate movements.
We are basically making an attempt to find the stock with the lowest amount of debt, highest growth rate, high return on equity, smaller mcap and trading at low valuations.
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Posted By: subodhr
Date Posted: 18/Aug/2010 at 2:48am
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Gr8 work SC...your work is really appreciated.
I believe in two things in stock market - 1. At what price you buy a stock 2. What level of patience you show in holding that stock If you buy at dirt cheap price a quality stock and hold for long enough to get it grow, I don't think you need to do much analysis. A quality large cap at dirt cheap price is always smart investment. My 2 cents. ------------- I never sell on declining market and never buy on rising market. |
Posted By: deb05ban
Date Posted: 19/Aug/2010 at 12:32pm
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Please carry on and be posted regularly. I want that analysis in my mailbox regularly if possible. Welcome Champ
Debjani
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Posted By: aloksahi1971
Date Posted: 19/Aug/2010 at 12:49pm
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Thanks to your detailed post I am rejiging my portfolio . I now seem to realise that letting money lie in a loss making stock and praying it will rise is futile being proactive in the decision making will help.
Though I try and trade only 2 times a month but some stocks I have got from the IPOs have paralised me like IBulls Power, R Power, NhPC. So letteing them go for increasing a stake in ZYDUS ------------- Born To Golf forced to work. |
Posted By: nikhil090
Date Posted: 19/Aug/2010 at 7:06pm
| Great effort Smartcat !! Thanks. |
Posted By: tjjeykumar
Date Posted: 22/Aug/2010 at 7:33pm
| where to find the CAGR PROFIT AND SALES . i could not find from moneycontrol |
Posted By: dilip.r
Date Posted: 22/Aug/2010 at 7:50pm
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gr8 work smartcat!! but i feel it will be a better tool to decide on which company to pick from a particular sector. |
Posted By: smartcat
Date Posted: 22/Aug/2010 at 7:54pm
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Sales & profit data is available on moneycontrol, but I use Rediff Money.
Eg: ITC's sales data
http://money.rediff.com/companies/itc-ltd/12630003/results-annual - http://money.rediff.com/companies/itc-ltd/12630003/results-annual
And this is an useful tool to calculate CAGR
http://www.moneychimp.com/calculator/discount_rate_calculator.htm - http://www.moneychimp.com/calculator/discount_rate_calculator.htm
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Posted By: venkym2000
Date Posted: 22/Aug/2010 at 11:29pm
http://www.geojitbnpparibas.com/CompanyProfile/CompanyProfileInner.aspx?cocode=451&id=131 |
Posted By: ravi
Date Posted: 02/Sep/2010 at 12:26pm
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Warren Buffett’s stress on return on equity over earnings per share is well known. However in this case I ran a few stocks over quanitative and qualitative factors including past track record, equity dilution among other things to select a few companies. However some large-caps a few no-brainers have not been listed as they are quite well known. 1) Jindal Saw 2) HT Media 3) 4) M & M Financial Services 5) Century Textiles 6) Cummins 7) Blue Star 8) Titan Industries 9) Colgate-Palmolive 10) Marico 11) Nestle 12) Tata Global Beverages 13) Aurobindo Pharma 14) Welspun Corporation 15) Engineers 16) LIC Housing Finance 17) Jain Irrigation 18) Sintex Industries 19) Bosch 20) 21) Havells 22) SKF 23) Thermax 24) Shopper’s Stop 25) Pantaloon Retail 26) CRISIL 27) 28) ICRA 29) Mphasis 30) UTV Software 31) Bajaj Auto Finance 32) Crompton Greaves 33) Page Industries 34) TTK Prestige 35) Voltamp Transformers 36) Manappuram 37) Exide Industries. ------------- |
Posted By: Monkey
Date Posted: 04/Sep/2010 at 5:15pm
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Sitting alone at home, I decided to follow the idea of smartcat. I have applied criterias to some of the stocks of my interest. I have selected only 4 criteria - P/E, ROE*retention, Income growth of last 4 years and EPS growth of last 4 years. Criteria selected have bias towards growth as dividend related parameters are not taken into account. Number of stocks are restricted to 10. All data are from Indiainfoline. Results are as below:
1) P/E -
Titan - 34.15, Rank-8
Zydus - 34.42, Rank-9
Page - 24.97, Rank-5
Hawkins - 14.24, Rank-2
Ador fontech - 5.09, Rank-1
Nestle - 42.69, Rank-10
GSK pharma - 28.89, Rank-6
Castrol - 22.8, Rank-3
Crisil - 23.14, Rank-4
HDFC bank - 30.95, Rank-7
2) ROE*retention
Titan - 28.36%, Rank-3
Zydus - 38.95%, Rank-2
Page-14.61%, Rank-7
Hawkins - 40.98%, Rank-1
Ador fontech - 24.16%, Rank-4
Nestle - 23.28%, Rank-5
GSK pharma - 14.36%, Rank-8
Castrol - 4.63%, Rank-10
Crisil - 18.86%, Rank-6
HDFC bank - 13%, Rank-9
3) Income growth of last 4 years
Titan - 30.1%, Rank-5
Zydus - 84.33%, Rank-1
Page - 34.85%, Rank-3
Hawkins - 16.96%, Rank-7
Ador Fontech - 12.42%, Rank-8
Nestle - 21.05%, Rank-6
GSK pharma - 4.47%, Rank-10
Castrol - 9.65%, Rank-9
Crisil - 44.37%, Rank-2
HDFC bank - 34.33%, Rank-4 4) EPS growth of last 4 years
Titan - 38.59%, Rank-3
Zydus - 13.99%, Rank-9
Page - 29.7%, Rank-6
Hawkins - 69.35%, Rank-1
Ador Fontech - 35.69%, Rank-4
Nestle - 27.06%, Rank-7
GSK pharma - -Ve growth, Rank-10
Castrol - 33.25%, Rank-5
Crisil - 53.11%, Rank-2
HDFC bank - 21.8%, Rank-8
Overall score / rank -
Titan - 19, over all rank-4
Zydus - 21, over all rank-5
Page - 21, over all rank-5
Hawkins - 11, over all rank-1
Ador Fontech - 17, over all rank-3
Nestle - 28, over all rank-8
GSK pharma - 34, over all rank-10
Castrol - 27, over all rank-7
Crisil - 14, over all rank-2
HDFC bank - 28, over all rank-8
I was more confused at the end of this exercise as results did not look as obvious as I thought, probably because critera selected are limited and / or not appropriate. Seems like I need to chuck out GSK pharma and may be think about buying Crisil.
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Posted By: prabhakarkudva
Date Posted: 04/Sep/2010 at 7:36pm
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As smartcat pointed out this tool can only tell you what the companies have done and not what they will.Also this tool is more useful for deciding what to sell rather than deciding what to buy.
Although I might look like a market timer(which is not appreciated on any long term oriented discussion) I personally feel Hawkins will disappoint in the next two quarters and would present some great buying opportunities then.As always i am just learning this game and might end up looking very foolish at the end of it all. ------------- Take your chances and keep them in a box until a quieter time. |
Posted By: rajnsharma
Date Posted: 04/Sep/2010 at 9:27pm
Is there any tool to predict the future  . If not then past indicators are the only way to predict that the company has exploited the opportunity well and if market is still expanding then it will do well.
I will be very happy if your prediction comes true. I would love to accumulate more of Hawkins when it goes down. This will be extremely good opportunity for those who have not been able to accumulate enough of it. |
Posted By: smartcat
Date Posted: 04/Sep/2010 at 1:51am
Ador Fontech is truly an excellent company to own - from both growth and value investing point of view.
What is RoE*Retention?
I think it makes more sense to look at EPS growth (like you have done) than profit growth (like I have done). One can see if equity is being diluted for achieving growth.
Other than looking at EPS, is there any other way to see if equity is being diluted frequently? Any financial parameter for example?
In my opinion, more financial parameters of equity valuation you use for the quantitative ranking, better will be your results. Other than the 10 parameters I have mentioned on this thread, the following percentages & ratios will help in improving the "accuracy" (there is no such thing actually) of the ranking -
Price to Cash Flow (P/CF): Representation for stocks/companies in the manufacturing sector which need to take up debt for growth.
Sustainable Growth: I have changed my mind on this. This parameter is useful for identifying companies that have artificially high RoE levels because of higher dividend payout ratio. Formula to be used in MS Excel -> [RoE * (1 - dividend payout ratio)]
Net Profit Margins
RoCE
Exports as a percentage of sales: The lower the better (in my opinion). A company that has lower exports will be immune to global slowdowns and currency fluctuations.
Input Costs as a percentage of sales: The lower the better. Stocks that are affected by crude oil, gold, other commodity price fluctuations will show up here.
Interest Coverage Ratio: This is operating profits divided by interest costs. Higher the better.
First quarter, Half Yearly OR 9 month sales & profit growth: These two parameters "rewards" stocks that are doing well in the current financial year.
Inventory Turnover Ratio: Sales divided by inventory - higher the better. This shows how efficient a company is in managing the inventory. Also lets you know beforehand if inventories are piling up.
All the above financial paramters are available for a single page on Rediff Money & Moneycontrol (under "ratios")
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Posted By: rapidriser
Date Posted: 04/Sep/2010 at 8:49am
You should also look at Debtors Turnover Ratio - Sales/Debtors - again higher the better.
If this ratio is low compared to other cos in similar industry, or falling compared to previous quarters, it could imply that the co is either inflating sales figures or losing its bargaining strength with its customers.
I attach the utmost importance to Inventory Turnover and Debtors Turnover - more than even ROE/ROCE. Because, as any Marwari businessman will tell you - cash is king.
Cos with high inventories (low Inventory Turnover Ratio) and high debtors (Low Debtors Turnover Ratio) should be looked at with suspicion, unless, like Opto Circuits, they have a logical explanation for the same .
------------- When all else is lost, the future still remains. - Christian Nestell Bovée |
Posted By: haricharan.ln
Date Posted: 04/Sep/2010 at 10:56am
Prabhakar,
Just curious...Why do you think Hawkins would underperform? Is it because of higher RM prices?
Also BTW does anyone have any idea how they are planning to use the money collected through their FDs?
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Posted By: prabhakarkudva
Date Posted: 05/Sep/2010 at 12:01pm
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Hawkins is an amazing company and even now it is grossly undervalued.But I somehow feel that markets pay most attention to immediate EPS growth and Hawkins working on the high base of last 2 quarters might 'disappoint' the market.If that happens & prices are revised downwards I will be a buyer,that much I can say. ------------- Take your chances and keep them in a box until a quieter time. |
Posted By: smartcat
Date Posted: 05/Sep/2010 at 12:25pm
OK, will do some investopedia research on this one.
I own Opto (hehe I think I own all stocks) too - what's the logical explanation for their low debtor turnover?
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Posted By: Monkey
Date Posted: 05/Sep/2010 at 1:34pm
Smartcat sir,
ROE*Retention is same as "Sustainable growth" you mentioned, Retention being (1 - dividend payout ratio).
EPS growth is better than net profit growth. I think this one is adequate for purpose of capturing dilution.
I think only four parameters are not enough. However, number of parameters needs to be optimised. Otherwise, it becomes too many details which might be un-necessary and / or duplicated.
One problem with many parameters like Net profit margin is how do they apply to banks. I faced this problem while comparing other companies with HDFC bank. Hence, dropped few of such parameters like debt / equity ratio.
Ador Fontech is amazing. Also, I was surprised by ranking of Crisil. I think apart from this quantitive set, there should be qualitative set for evaluation. That would be highly subjective but be it as only quantitative set would not be adequate.
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Posted By: smartcat
Date Posted: 05/Sep/2010 at 2:01pm
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Higher net profit margins in bank or a financial institution possibly implies lower NPAs, higher NII, higher efficiency (lower admin costs or higher profits per branch) and higher treasury income (non-interest income). Eg: HDFC Bank/Axis Bank/Yes Bank have net profit margins of around 15% while SBI/Bank of India have net profit margins of around 10%. Re: Debt/Equity
I know financial institutions by their nature of business have higher D/E ratio and it won't make sense to compare it with another business, using conventional logic.
But looking at it a bit unconventionally, the reason why we look at D/E ratio is to find out how susceptible a company is to interest rate changes. So its natural for banks & FIs to be penalized in our ranking system.
Remember how badly banking & financial stocks were hit during the 2008 crash (when compared to say FMCG, pharma or oil stocks) - Indiabulls Financials - does it ring a bell? So including D/E ratio in the quantitative ranking lets you know about the risks of owning interest rate sensitive stocks
I agree - it would be idiotic to base stock investment decisions on just Microsoft Excel.
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Posted By: MR TED
Date Posted: 05/Sep/2010 at 4:17pm
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Dont u feel 1 thing..if the management is decent, and business model is
good, industry of operation has either tremendous scope of growth or
the company is a leader in a stagnant/deteriorating industry, company
makes right business moves at right time....then automatically the
numbers which we shall dig out will fall in place. I mean, everything was perfect in telecom, all numbers, airtel, Rcom was in many of urs portfolios as well. They fell because of business model changes, pricing etc. So, I want to know, those many who held Airtel, Rcom, did they sell looking at the numbers or the transforming business situation. Why I am asking this is because, numbers will follow business, so should we invest our time in tracking business or numbers? or what weightage to what? Thanks! |