Today we'll going to cover a checklist. With the help of this checklist I prefer my stock for analysis. The query which I’m going to run here is a very conservative query.
Indian market is a very liberal one where we’re seeing high valuation of companies (most of them are overvalued).
Starting with PEG ratio of less than 1.5, 2nd parameter is of sales growth 7 years more than 20% (you can add here 18% or 15% also) as I’m looking for only cream companies.
Profit growth of 7 years should be more than 20% (can fluctuate by a minor % as per your parameter)
Debt to profit should be less than 3. If you don’t want debt companies you can go for zero debt
Free cash flow to net profit ratio more than 0.8. With profit you’ve free cash flow too. More than 1 is better as profit is not the parameter to judge a company as it is calculated on sales.
Market cap should be more than 1000CR (on screener you don’t have to write CR just insert 1000 as value). You can also look for large cap companies of nearly more than 5000CR
Enterprise value to EBITDA is less than 10 (in our complete guide research analyst course we’ve seen EBITDA explanation in detail)
EV = Market capitalization + Debt - Cash & Cash equivalent
EV tells that you’re purchasing the company with its actual value plus any debt it has
If the co. is at a selling price of ₹1000CR in the market, not just 1000CR but the extra debt of ₹250 CR will be your burden if you’re planning to buy the co. (as the entire ownership gets transferred with the assets & debt)
After running our query, we got 9 companies (as we were very conservative)
1st co. of Share India securities let’s do its analyst and see what will be our target price. After 1 year where can we see this co., which price to buy
We’ve opened an excel sheet, the formulas are already inserted you need to insert value. We’ll have data from 2019 to 2023.
To find the EV , we’ll go to moneycontrol. You need to go into ratios then you can see the EV in consolidated column.
EV to EBITDA is readily available
EV to EBITDA formula I’ve inserted
If we need to find the EBITDA growth =(E5-F5)/F5*100 then we get 38% as EBITDA growth to copy in different years
We then find the EBTIDA average of 3 years (2022, 2021, 2020)
THe expected EBITDA 20234 gonna be very important. EBITDA growth after averaging is becoming 93%
If EBITDA is 100 then expected EBITDA gonna be of 193 (if it increases by 93%)
If EBITDA becomes 503 then what will be the expected EBITDA after cross multiplication you get the final value
To calculate the forecasted EV, for that we need to take this expected EV and then multiplying it by EV to EBITDA ratio i.e of 4338.65
Then we need to subtract the debt from forecasted EV . After coming in the B/S column. iF you’re really conservative, you can carry the total non current liabilities (as there’s no such long term liability Share India has)
As you’re the owner of the co. you don’t have the burden of debt so we’re subtracting it from forecasted EV.
In capital structure you get the no. of shares.
On Target price the formula is G10/G11.
Our entry price is 25% less than target price.
Therefore the CMP of Share India is overvalued. You can do the same with other cos.
All the formula have been inserted into this sheet.
All the values are taken from moneycontrol & screener. Even if you keep 80% instead of 75% in entry price (that means in 1 year the co. will grow by 20%)
However the CMP is at higher side
The checklist which I shown can be used for management analysis too in which you can check the scam or fraud of the co.
Political connections is also checked. Management remuneration is also to be seen, board composition is also to be seen (how many independent directors, family members are there) E.g. Reliance has family members but it is well diversified. These things matters as all the unbiased decisions are taken by the board. Pledging of shares, how much market advantage it has. India is highly populated country so most businesses can be run if they’re handled well so management of constitution is needed.
Many people are finding the monopoly & duopoly stocks. If there ‘re too much govt. restrictions, licensing in such cos there’s less competition. But if the co. has good performance, high market share, co. has good management, you can invest.
You can view concalls in the documents section, you can see the transcript also (they give you better insights). What commitments co. made & their completion.
If you see any share based on instrinsic value formula by Graham Bell, his formula is NOT working in Indian cos.
In Shark Tank the sharks are ready to give valuation of 3-4 times maximum of thier revenue. As there’s top line is more and bottom line is too less. Profit is very less. You can give 10 to 20 times of profit to the company’s valuation.
But when you’re checking the revenue of an unlisted company, 2-4 multiple of revenue can give.
On screener you can see the instrinsic value of Share India securities. As per its CMP it is highly overvalued. Oil India also has very high instrinsic value, oil India comes in sunset industry so we can’t speak much about it.
Maharashtra seamless also has very high instrinsic value. As per the query we’ve run, all these companies are undervalued companies. For short term you’re using technical analysis.
But for long term investing, this excel sheet is to be used. The instrinsic formula calculation is very objective (person to person varies)
Ticker by finology is also providing instrinsic value calculation. Finology is a paid website so we’ve choose screener
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