Intro' To Valuation

1
Intro. To Valuation

• How do you value a public company?
• What metrics do you employ?

2
Table of Contents

• I. Fundamental Analysis
• II. Technical Analysis
• III. Value Analysis

3
Fundamental Analysis

• Understand the business model
• 10K, 10Q
• Letter to Investors/Prospectus
• Analyst reports
• Press releases
• What are the core earnings drivers?
• Review historical performance and earnings
  estimates

4
Fundamental Analysis

• Graham Dodd (vs. Peter Lynch)
• Investors should buy stocks with undervalued
  assets and that eventually those assets would
  appreciate to their true value in the
  marketplace.
• Current assets exceed current liabilities all
  long-term debt
• They suggested that the stocks be sold after a
  profit objective of between 50 and 100 was
  reached
• Which they assumed would be three years or less
  from the time of purchase
• Hunt for stocks selling below their liquidating
  value and do not necessarily concern themselves
  with the potential for earnings growth
• Strong management and strong quality of earnings

5
Technical Analysis Overview

• Why is the company undervalued by the market from
  a quantitative standpoint?
• Charts
• Ratios
• Comparable Company Analysis
• DCF or FCF modeling
• Football Field Matrix

6
Charts

• Trading volume
• Peaks and valleys
• Moving averages
• Compare to indices and competitors
• Finance.google.com
• Bigcharts.com
• Prophet.net

7
Ratios

• Understand industry-specific ratios
• High revenue growth, profit margins
• Use a starting point for comps.
• EPS
• P/E
• P/B
• ROE

8
Comps. Analysis

• Comparable companies
• Enterprise Value
• Theoretical takeover price
• Market cap debt minority interest preferred
  shares total cash
• EBITDA
• Earnings before interest, depreciation,
  amortization
• EV/EBITDA EV/Revenue

9
DCF/FCF Modeling

• Current value according to its estimated future
  cash flows

• (Operating profit depreciation amortization
  capex - cash taxes - change in working capital)
• discounted to present using
• W.A.C.C.
• Growth rate
• Discount rate

10
Economic Value Add

• What profit remains after debt and equity costs
  are deducted from operating profit

EVANOPAT WACC(TC)
Net Operating Profit After Tax Operating
Income(1-Tax Rate)
Weighted Average Cost of Capital
E/VReD/VRd(1-Tc)
11
Value Analysis

• Conviction!!!
• Connect technical analysis figures to industry
  trends
• Be sub-sector specific
• Look at ETF market movers
• momentum in organic revenues mixed with a
  thematic catalyst and a long orderly base on the
  chart
• Especially when that grouphas been out-of-favor
  for awhile and likely neglected and ignored
• Observe macro trends
• Interest rates and inflation
• GDP growth, CPI, corporate profits
• Fixed-income and real estate