Learning Valuations .-- In the BSE ,NSE Exchange there are more than 6000 companies listed ,out of this about 3500 actively trades and and out of this 2500 are of no use or worth investing. out of 1000 left if we keep aside the large chips we are left with 400 stocks out of these look at stocks with 30% growth,25% roe. and very low pe about 8-10.and try to find these .Mid caps or Small Caps if invested wisely can create handsome returns irrespective of sensex returns.
Business and Managment Analysis.
1) Try to undersatand company business.what does company do and what are its source of income.how does it earn and make profit.Get a s brief of this.if you cant understand the business try to avoid the company.a quality sustainable monoploy buisness is the excellant one.
2)The company is in which sector ..Does that sector is a growing or stagnant sector .
3) Is the company leader in the sector or has a sufficent market share to enable its presence.
4) Does the promoters believe in his company and has more than 40 % stake
5) Is the company best in its sector and where it stand with respect to its competitors.Is it one of the best option available in that sector.
6) Look for a quality and efficent managment ,experienced managment with good past track record and shareholder friendly
7) The pledging of promoters should be zero (or very very low-- below 8-10%)
Financial checkout.
1) Has the company incresed its growth over the years.does the revenues,netprofit,operating margins increase over the years.
2) Has the roe and roce increased over the years .invest in companies with roe and roce of last 3-5 years more than 15%.the companies of roe more than 25% is worth a look.
3) what is the debt to equity ratio of company. is it in comparison with its peers. as it depends upon sector to sector. generally it should be between 1.2 to 1.5. but prefer to find a company with low or zero debt to equity or debt to equity below1.
4 ) what is the cash per share?
5) Is the company cash flow positive.net cash flow as well as operating cash flow must be positive.
6) Avoid companies which dilute equity often.Good companies generate income from there business not from investors.
7) Does the company pay tax. be cautious with the company which pays tax below 20%.generally the corporate tax is 33%. but if it below this there could be number of reasons like tax exemption etc . dig out the reason as the company may be generating malacious balance sheet.
8) Company must be paying dividend every years.
9) How the operating margins will suffer if intrest rates go up,inflation goes up,rupee depreciates ,crude oil impact or there is a cheap import from other countries.
1) Profit margins must be sustainable or increasing.
2) EPS growth should be above 25%.
3) Try to find out the intrinsic value or expected valuation using DCF growth or eps growth Method.
4) P/E should be below 15.
5) P/B should be less than 3.
6) ROE should be more tthan 25%.
7) Large part of profits must not be eaten by interest and debt.
8) Entry point should be good. check P/E of nifty /sensex. be cautious if it is at above P/E of 20. at P/E of 14 is excellant
9) Do not buy a stock only if it cheap only.
10) Is stock reacts in accordance to its profit growth nos.in pastas there can be some hidden or unknown fact you are not knowing
