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Mamta
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   Topic: Equity ValuationOne size does not fit all
Posted: 18/Jul/2006 at 4:26pm |
 The two methods of equity valuation are the dividend discount method and the earning multiplier method.
The earnings multiplier method is the most popular method .The key question to be answered is the earnings multiplier method are:What is the expected EPS for the forthcoming year?What is the reasonable PE ratio given in the growth prospects,risk exposure,and the other characteristics of the firm?To answer these questions,the investment analyst starts with a historical analysis of earnings(and dividends),growth, risk, and valuation and uses this as the foundation for developing the forecasts required for estimating the intrinsic value .
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basant
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Posted: 18/Jul/2006 at 4:44pm |
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Right but the problem does not end there it starts from that point most of the EPS analysis is incorrect and falls way off the mark and as per the PE the market gives a different Pe each morning to a stock - Stock prices change every day and EPS remains constant so the only change is the PE. CLearly PE is much like perception and EPS like performance. I have seen that most of analysts are analysts only for name sake. They are like accountants basically. Company profits are construed on the basis of what the managemnt tells them and there job is to prepare the income statement , balance sheet and the cash flow. So while EPS and PE are truly the drivesr the problem lies in estimating each of these.
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'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
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Mamta
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Posted: 18/Jul/2006 at 4:53pm |
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The key to investing is not assessing how much an industry is going to affect society, or how much it will grow , but rather determining the competitive advantage of any company and, above all, the durability of that advantage.The products or services that have wide, sustainable moats, around them are the ones that deliver rewards to investors.
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Mamta
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Posted: 18/Jul/2006 at 5:08pm |
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Based on how the company has done in the past, how it is fairing currently,and how it is likely to do in future, the investment analyst estimates the expected EPS.An estimate of EPS is an educated guess about the future profitability of the company.A good estimate is based on a careful projection of revenues and costs.Analysts listen to what customer says about the products and services of the company, talk to competition and suppliers, and interview management to understand the evolving prospects of the company.
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basant
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Posted: 18/Jul/2006 at 5:30pm |
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ABsolutely. These are the golden words but once a person gets into the investment business he forgets all of these and relies only on company information and what does he do for companies that do not give guidance - Nothing he just takes the past figures and extrapolates. There are multiple analyust reports refusing to take into account any of the profits from a company's new venture -reason being that the company did not give them any figures. The best case in point is TV 18 where none of the analyst reports talked about earnings from their various ventures like internet, Awaaz and CNNIBN. In fact none of the reports talk about it even till date.
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'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
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Ambarish
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Posted: 18/Jul/2006 at 11:24pm |
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the method mentioned above are based on no. in the balance sheet &
income statement of past present and future of a company and are'nt
these things prone to manipulation so how much should a person rely on
such calculative method and what are the other ways from which
one should ananlyze the performance of a stock
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basant
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Posted: 18/Jul/2006 at 8:46am |
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I would think that your apprehension is genuine. But the point is that as Investment analysts we should give each company ONE chance. If they falter in that then investors need not put in their money but the first chance should always be given. If you see through the history of Indian stock markets companies that took shareholders for a ride could do it just once. The RPG group, Non- Av Birla group, etc are allexamples of what shreholders wrath can do to you if you play with their money. Asthey say you can lose your reputation only once.
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'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
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shuchi
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Posted: 21/Jul/2006 at 9:46pm |
hi
could u plz explain me wat do we mean by cash eps ...n wat relevance does it have while we analyise a stock?
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