My Top 7 Gold Valuation Ratio
Author: Mohamad Jeffrey Ismail | Publish date: Wed, 8 Jun 2016, 03:54 AM1. Price/FCF
Instead of using PE ratio, I'd like using P/FCF for multiple stock analysis of the same industries as it tell me of how much I would pay for every dollar of free cash flow generates from their business. A company with good net income and great EPS number might have negative free cash flow. But, some growth company does have negative number of FCF as they tend to reinvest their earnings for growth.2. Cash return on invested capital (CROIC)
It is the more conservatives way than ROE and ROIC. CROIC shows how much cashflow the business generates from invested capital. The higher the CROIC, the more cash the company generating, indicates the business is profitable one. This is a powerful tools i've used in each stock analysis i did.3. OCR and Free Cash Flow Growth
As we tend to look for a company that had increasing profit margin, a value investor like to see free cash flow growth much much more. In fact, increasing in profit margin should be in line with growth in OCR and FCF. A company that able to generates much profit without increasing in FCF indicates one of two, either the company might reinvest their earning or they are destroying the value.4. Price to book ratio
As usual, price to book ratio is widely used metric to determine the company is undervalue or overvalue in relation to its net asset. The common value used of this ratio is 1 to 1.5, but it is better to compare the company ratio to the industry.5. Current ratio and D/E ratio
I used current ratio aand debt to equity ratio for measuring the liquidity and debt of company. Current ratio more than 1.5 indicated the company is having strong liquidity and debt to equity ratio less than 0.5 indicates the company is safe for long term investment. Like the other ratio, comparing it with industry is good as well.6. FCF yield
FCF yield is basicly like the earning yield. FCF yield is better used to compare multiple stocks in same industries as well as P/FCF. Stock that has FCF yield more than 10% is consider cash generating machine.7. Dividend yield
I usually prefer company that gives bonus to their shareholder in from of dividend. But it is not my priority to find a company that gives strong dividend because too high dividend paying might attract people to get in, but it could destroyed the value of company. For me, I loves to see the company generate more and more free cash flows by reinvesting their FCF as this will lead to increasing on instrinsic value of the company. But, it is good to have company that paying their shareholder with dividend as long as they could maintain their free cash flow growth.This is how I value stocks based on quantitative analysis of value investing.
Finally, here are the EXAMPLE of 5 undervalued stocks (Shariah Compliance Stocks) by using 7 valuation ratio I mentioned above :-
1. FAVCO
Price RM2.67
2. SPRITZER
Price RM2.54
3. HUA YANG
Price RM1.79
4. SURIA
Price RM2.14
5. OLDTOWN
Price RM1.83
