Sunday, March 22, 2015

An Experiment in Stock Valuation: Market Price and BVPS

I want to make an experiment in stock valuation. I intend to use this as a personal reference in investing, trading and speculating. Don't ask me how I manage to combine these three approaches. Personally, I prefer long-term investment, but with the kind of market that we have, I consider it blind to stick with this plan regardless of stocks that you buy. I still believe that long-term investing is applicable particularly if you still have time and has enough patience to wait for several years. 

We are living in an interventionist society. And so the stock market is no place for long-term investors who follow conventional wisdom. In a market that we have, whether you like it or not, you will be pushed either to speculate or trade. 

In this experiment, I selected 8 tickers and 2 of them are not included in my portfolio. And by the way, I have to emphasize that this article is NOT A RECOMMENDATION to buy the stocks I selected. I am simply learning while writing my thoughts and do actual trading. 

The 8 tickers are as follows: CAL, CEB, COSCO, CPV, DMPL, EDC, PSPC and PX. In this article, I just want to focus on market price and book value per share of these stocks. 

Market Value (MV)

What is a market price of a stock? A market price of a stock is "the current price at which the stock is traded" at PSE. As of March 22, 2015, the market price of my selected stocks are as follows:

CAL: 3.94 

CEB: 86.05 

COSCO: 9.14 

CPV: 5.6

DMPL: 12.2 

EDC: 8.19 

PSPC: 2.88 

PX: 7.62

Book Value (BV)

Now let's go to book value per share (BVPS). What is BVPS? BVPS is

"A measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Should the company decide to dissolve, the book value per common share indicates the peso value remaining for common shareholders after all assets are liquidated and all debtors are paid. In simple terms, it would be the amount of money that a holder of a common share would get if a company were to liquidate." - Investopedia

Computation:

BVPS = Value of Common Equity (Total Shareholder Equity - Preferred Equity) / 

# of Shares Outstanding

The Book Value of the 8 Stocks as of 2014

CAL: 828,645,599 / 359,827,000 = 2.30

CEB: 22,554,884,877 / 605,953,330 = 37.22

COSCO: 58,423,000,000 / 7,401,763,564 = 7.89 

CPV: 1,260,676,104 / 564,210,000 = 2.23

DMPL: 10,048,852,000 (228,383,000*44) / 1,944,035,406 = 5.16 

EDC: 35,433,800,000/18,750,000,000 = 1.88

PSPC: 3,449,920,000 / 2,165,024,111 = 1.59

PX: 26,110,000,000 / 4,940,399,068 = 5.28

Notes:

1. CAL's BV is based on a balance sheet reported as of December 31, 2014 and the number of outstanding shares is current.

2. CEB's BV is based on a balance sheet reported as of September 30, 2014 and the number of outstanding shares is current. 

3. COSCO's BV is based on a balance sheet reported as of December 31, 2014 and the number of outstanding shares is current. Moreover, the figures in the report are expressed in million and that is why I added 6 zeros to COSCO's total common equity for computation:

Total Assets: 82,420 - Total Liabilities: 23,997 = Shareholders' Equity: 58.423 

4. CPV's BV is based on a balance sheet reported as of December 31, 2013 and the number of outstanding shares is current.

5. DMPL's BV is based on balance sheet reported as of December 31, 2013 and the total # of outstanding shares is current. Furthermore, the original figures are expressed in USD in thousand and the forex applied is 1USD=44Php.

6. EDC's BV is based on balance sheet reported as of December 31, 2012 and the total # of outstanding shares is current.

7. PSPC's BV is based on balance sheet reported as of June 30, 2014 and the total # of outstanding shares is current.

8. PX's BV is based on balance sheet reported as of March 31, 2014 and the total # of outstanding shares is current. 

9. I am aware that to have a more accurate data, one has to use either a "weighted outstanding shares" (which I do not have time to research now and my initial impression is that the subject is too technical) or to go back to the past (which can on only be done if you have Michael J. Fox's time machine) to come up with the exact shares outstanding consistent to the year the book value of the stocks was reported.. And so I deliberately ignore this difficulty and simply worked with figures taken from two different time to compute BVPS. 

Comparing Market Value (MV) with Book Value (BV) 

Finally, let us compare the market value (MV) and the book value (BV) of the 8 stocks:

CAL                MV: 3.94                   BV: 2.30 

CEB                MV: 86.05                 BV: 37.22

COSCO           MV: 9.14                   BV: 7.89 

CPV               MV: 5.6                     BV: 2.23 

DMPL             MV: 12.2                   BV: 5.16 

EDC               MV: 8.19                   BV: 1.88 

PSPC              MV: 2.88                   BV: 1.59 

PX                 MV: 7.62                   BV: 5.28

I used purple color in typing the stocks, which I think in a market flooded with excessive liquidity are not "overpriced". However, these stocks are problematic. For one, PX is under the mining sector, which I assume all analysts agree is in the downward and sell trend. 

Second, both CAL and PSPC are unpopular. In fact, their IPO stories are not good. After reaching higher prices than the initial offering for a short period of time, they sunk below their original prices. 

Third, the fundamentals of COSCO is good. However, its financial statements and EPS appears questionable to me. The firm reported a soaring income in 2014, but paid a very minimal dividend to its shareholders. 

Fourth, both CEB and EDC are considered solid firms. In fact, they are included in one broker's top stock picks this 2015. Though the USD is strong and it certainly has an impact on CEB's financial position, still I have no question about its market price due to the low price of oil, which a huge part of their operational expenses goes. But in the case of EDC, I am beginning to doubt its soundness, not only because it has been into expensive renewable energy but I sense the interfering hand of the government in this firm. 

Finally, though I am suffering loss in buying DMPL, but instinctively I like this stock after reading a considerable number of pages of the company's report. I just wish that my instinct is right. If there is a way for me to ask few of their personnel, I want to know which firm they consider a strong competitor and also questions related to the financial impact and current status of its acquisition of DMFI. 

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