Some GEMS from SPG:
Corporate Information
1. Market Capitalisation:
This gives an indication of the worth of the company placed by the market. On occasions, the worth maybe too high. Certain small companies may have market capitalisation of many billions. At times like this, the market capitalisation gives a sense of reality. During period of extreme bullishness, all Bursa Malaysia companies have a minimum value (about RM200 m). If the market capitalisation is below this value, the company maybe under-valued during this type of market.
2. Segment Information:
Most companies operate in more than one sector of the economy and different sectors of the economy perform differently.
A better understanding of the company can be obtained if the sales and profit before tax of each segment is separately provided.
Market & Financial Statistics
3. 3-Year Price Chart:
The weekly price chart of the stock for last three years give a visual indication of the current valuation relative to historical valuation.
A stock whose price is very high or very low relative to its historical level is probably worth investigating further.
The Critical Stockmarket Information
The Annual Information
4. Adjusted Price Range
The adjusted price range over the past decade would give a good idea of the range and trend of price movements of a particular stock.
The most important use of the price range is to consider the trend of the price over the years and compare it with the growth of earnings and dividend as well as consider it in relationship to common sense.
Generally,
beware of sudden price movements upward from a low previous level because such upward movements usually cannot be sustained. Similarly
if the price has been in a sharp fall inspite of reasonable DY and PER, it usually will recover in due course.
The second most important use of this information is to consider the
size of the price range in the past. The greater the range of movement,
the more volatile is the share's price and the riskier it is as an investment. An investor has to be particularly careful if he is considering buying a highly volatile share which is not backed by good dividend or earnings. Even worse is the situation in which the volatile shares is selling at a high price.
5. Adjusted Dividend per Share (DPS)
This is the most important column to look at when evaluating the worth of a share. The ideal situation is for the DPS of a company to
grow smoothly and rapidly over the years. There is one important
caveat in the use of this information; the amount of dividend paid out must be compared with the amount of earnings per share (EPS).
The growth of DPS must be proportionate to the growth of EPS. A company cannot sustain year after year of higher DPS than EPS. On the other hand, the DPS should not be too small compared with the EPS unless the EPS is growing rapidly.
Under normal circumstances, the DPS should be between 30-70% of the EPS.
6. Adjusted Earnings per Share (EPS)
This column shows the progress made by the company in terms of its earnings per shares. As with DPS, the ideal situation is one in which the
EPS grows smoothly and rapidly. Failing that a company ought to have either
a stable or growing EPS. The worst would be for a company which has highly variable AND declining EPS. This is the second most important information to look at when one is trying to evaluate the worth of a share.
Starting from FY97, extraordinary gain/loss is excluded from the computation of bottomline earnings while "exception" gain/loss is not. To prevent violent fluctuations in EPS, SPG continues to exclude these from the computation of bottomline earnings, except in cases where such gains/loss may be regarded as part of the ordinary business of the firms.
7. Adjusted DY Range
This information is
only truly useful if the shares are investment grade shares. By this we mean shares which are not speculative and whose prices bear reasonably stable relationship with its DPS and EPS.
Regretably, in the Bursa Malaysia a large number of shares fall into the speculative category.
It is very important to know the DY of a share because this figure provides us with a direct comparison against the return we can get from fixed deposit. The return we can expect from a share should bear some relationship to the average return on fixed deposit.
Very generally speaking, the DY of share we want to invest in ought to fall roughly within the range of 2-6%. Investors are willing to accept lower DY for shares with faster growing DPS/EPS and vice versa.
We ought to buy share with DY of less than 1.5% only in exceptional circumstances.
The DY range is the minimum and maximum DY for a given year calculated using the highest and lowest prices for a given year. This information allows investors to relate the current DY to the range of DY experienced by the share in the past. Ideally, the DY at the price which one is considering buying the share should be at worst be in the middle of its past range.
Thus, we always ought to check the historical range of DY before the purchase of a share. If the DY is too low, we ought to be very careful.
8. Adjusted PER Range
PER is probably the most commonly used ratio for evaluating the worth of a share. SPG does not recommend its use by laymen as strongly as DY because in Malaysia, EPS tend to fluctuate a great deal and as a result this makes the resultant PER less stable and difficult to use.
PER is an important ratio because it gives us a quick idea of, in a sense, how quickly an investor can get back his money in the form of earnings after buying the shares. A share purchased at a PER of 33 would mean that the purchase price is 33 times larger than the current earnings capacity of the share one is buying. That is, if the EPS stays unchanged, it would take 33 years for the earnings to equate to the buying price. For this reason, SPG does not recommend the purchase of a share at PER of much greater than 20 in normal circumstances.
Although the use of PER seems simple, there are several problems in the use of PER which render it not very usable by laymen at times. The first problem is that owing to the lack of stability of EPS for many Malaysian shares, there are years when the EPS is very low. When that happens, the computed PER is very high. This would make the share seem very expensive for that particular year. However, the high PER is only due to the abnormally low EPS for a single year and cannot be taken as representative of the average situation. The same problem in reverse occurs if the EPS is exceptionally high. Ideally, the concept of PER is only applicable if the share has very stable EPS or if the PER is computed using some sort of average or normalised EPS. The second problem, is that, whenever the EPS of a share is negative, it is not possible to calculate a meaningful PER figure.
As with the DY range, the PER range is the range of PER for a given year calculated using the highest and lowest prices for a given year. The reason for providing this information is that investors can relate the current PER to the range of PER experienced by the share in the past. Ideally, the PER at the price which one is considering buying the share should be at worst in the middle of their past ranges. Thus we ought to check the historical range of PER before the purchase of a share. If the PER is high by historical standard we ought to be doubly careful. In a company where its EPS had been volatile, PER range is not as useful as in the case of a company with stable EPS. A PER ratio towards the low end of its historical PER range would seem to suggest that its valuation is low at this price level
Non-Annual Critical Market Information
9. 5 and 10-year Growth Rates for Price, DPS and EPS
Serious investors pay a lot of attention to the growth rates of price, EPS and DPS. Growth rates over a long period (5 and 10 years)overcome the problem of cyclical fluctuations in earnings, dividend and price.
These growth rates provide three useful types of information. First, a comparison of the growth rate of price against those of earnings and dividends gives the investors a clue to the sustainability and valuations level of the current price. Second, a comparison of the growth rate of dividend against earnings give a clue of the sustainability of the current dividend. Averaging the growth rates of the high and low prices give some idea of the growth rate of the mid-range price. Once you have the growth rate of the mid-range price, you can then compare it with the growth rates of the EPS and DPS. If its price has been growing at a very much faster rate than earnings and dividend, it probably cannot be sustained. Similar comment would apply to a comparison of the dividend and earnings growth rate.
Third, the growth rates of the EPS and DPS provides us with a useful measure of the management quality of the company. If we compare its growth rates with those of other companies in similar line of business, a better than average growth rate would signify above average management quality.
When using these figures, investors are cautioned to be aware of the fact that things in recent years may be very different from those of earlier years. Although a company's ten year EPS or DPS growth rate may be good, its actual performance over the last five years could have been lacklustre due to the Asian Crisis. It would be risky to evaluate it on its average five or ten years' growth rate alone. (Therefore, need to study the individual years data too).
10. Average Values of 5-Year & 10-Year DY Range and PER Range
The reason for providing this type of information is to aid the users in determining whether the current price of a stocks is reasonable compared with the historical records. Ideally, the DY and PER ranges provide guidelines as to the expected ranges of a stock's future DY and PER. One should not purchase a stock if its DY is far below or the PER far above the historical range. The previous statement however must be applied with care if the current DPS/EPS is not normal. In an abnormal year, excessively low DPS or EPS can give rise to false readings in terms of the DY/PER. One should always refer to the 5- and 10-year growth rates for DPS/EPS to see whether the current level of DPS/EPS is in line with previous years figures. Otherwise, one should use the average DPS and EPS for the computation of the DY or PER.
Ref:
How to use the Stock Performance Guide (SPG)
Stock Performance Guide by Dynaquest Sdn. Bhd.
