Intelligent Investor's Notes
Good Companies with low P/E
Intelligent Investor
Publish date: Fri, 30 May 2014, 02:04 PM
Two days ago, I have compiled Company listed in BURSA with ROE > 20% and Low Debt.There are a total of 14 companies in the list. And, this list is a subset of company listed in bursa with ROE > 20%. which consists of 72 companies.
As explained in the said article, a company able to achieve high ROE from 3 appraoches as introduced by DuPont Analysis:-
- Higher Net Profit Margin
- Higher Asset Turn Over
- Increase Financial Leverage
There is no doubt that the companies that show in my previous list which achive high ROE by high net profit margin \ asset turn over and low fiancial leverage are definitely a candidate for a good companies. So, should we invest in those good companies? But, wait a minute. This might not be a good investment options.
A good company has to be a good investment, doesn't it? After all, Warren Buffett focuses on good companies and he's a billionaire. So it follows that good companies have to be good investments.
Or do they?
Buffett has become a billionaire not because he is just buying good companies, but because he is buying good companies at a discount to intrinsic value. That is, it all depends on what price one pays. There is valuation risk no matter what kind of investment one makes.
Or do they?
Buffett has become a billionaire not because he is just buying good companies, but because he is buying good companies at a discount to intrinsic value. That is, it all depends on what price one pays. There is valuation risk no matter what kind of investment one makes.
Mr Chong did mentioned in his article that Investment success doesn’t come from “buying good things,” but rather from “buying things well.” A simple metric used to carry out “buying things well” is to compute the price-earnings ratio (PE) of a stock. A low PE say at less than 10 may signify that the stock is cheap.
Owing to this, I further fine tune my list to find a good companies which is relatively cheap (P/E < = 15).
|
Code
|
Name
|
ROE%
|
ROTA%
|
Leverage
|
P/E
|
Close Price
|
F.Y.
|
|
|
1
|
7231
|
WELLCAL
|
29.67
|
25.17
|
1.18
|
1.67
|
1.5
|
30/09/13
|
|
2
|
5204
|
PRESBHD
|
43.39
|
35.81
|
1.22
|
2.23
|
1.8
|
31/12/13
|
|
3
|
5168
|
HARTA
|
30.55
|
24.82
|
1.23
|
2.93
|
5.92
|
31/03/13
|
|
4
|
0008
|
WILLOW
|
22.55
|
18.52
|
1.22
|
3.17
|
0.81
|
31/12/13
|
|
5
|
7100
|
UCHITEC
|
20.47
|
17.87
|
1.15
|
6.66
|
1.44
|
31/12/13
|
|
6
|
0099
|
SCICOM
|
21.06
|
19.13
|
1.10
|
8.55
|
1.04
|
30/06/13
|
|
7
|
5131
|
ZHULIAN
|
24
|
21.71
|
1.11
|
9.58
|
2.71
|
30/11/13
|
|
8
|
0113
|
MMSV
|
22.24
|
18.77
|
1.19
|
12.96
|
0.21
|
31/12/13
|
|
9
|
6769
|
KELADI
|
21.74
|
19.92
|
1.06
|
15.20
|
0.33
|
31/01/13
|
And, please don't get me wrong. This is not the final list yet as a thorough analysis need to be carried out to further examine the companies in the list.
"An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative." - Benjamin Graham
References:-
Posted by Intelligent Investor at 14:00
Labels: Stock Pick
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Discussions
1 person likes this. Showing 39 of 39 comments
Hi ipomember, thanks for your comment.
As per what I stated in my post, this is not the final list yet as a thorough analysis need to be carried out to further examine the companies in the list.
2014-05-30 14:19
II, I really doubt that the top 3 companies in your list P/E are that low. You need to check back on the corporate exercises done for these companies. Bonus issue or share splits will increase the outstanding number of shares and you need to calculate the P/E based on the adjusted price before bonus if you want to use previous year EPS as guideline. Personally I have done a thorough analysis on Willow before and the P/E is not that low.
2014-05-30 14:24
Hi noby. Yes, this is just a raw number. Don't worry, I won't click my "buy" button before I perform more detail study.
I cross check with i3 - http://klse.i3investor.com/servlets/stk/fin/7231.jsp
and it show that wellcall p/e is 8.21 - still a good number.
2014-05-30 14:29
it is Total Assets / Equity, you can refer to the DuPont analysis posting - http://intelligentinvestor8.blogspot.com/2014/05/dupont-analysis-dissecting-roe.html
2014-05-30 14:39
Just a quick check on Wellcall and Presbhd, the PE is more than 10x. Both have done the bonus issue (i believe).
2014-05-30 15:37
low PE doesnt mean good. just look at China based companies. all very low PE
2014-05-30 15:47
I would suggest to value the companies in the list using Return on Capital Employed (ROCE). ROCE indicates or measures a company's profitability and the efficiency with which its capital is employed. Above 10% consistently for a good business. Above 15% indicates a strong business.
2014-05-30 15:52
hi speakup,
Yes. I would agree that low P/E doesnt mean good.
If you read my post, you will aware that the above companies was selected based on high ROE which achieve by High Profit Margin \ Turn Over and low financial leverage. Do look at company quality first prior to look at P/E.
P/E is not able to provide a whole story.
Do always take note on this.
2014-05-30 16:01
Hi fookchng,
The main difference between ROE and ROCE is ROCE minus out the current liabilities on the denominator.
ROCE will provide a significant difference if a company have huge current liabilities.
And owing to this, I think ROE will sutie my taste better than ROCE. Isn't the current liabilities contribute to the company asset? We need to measure how the management generate value based on all granted asset.
By the way, I try to look for companies with low financial leverage. The companies listed here is a subset from the company list with high ROE and low financial leverage which posted earlier - http://klse.i3investor.com/blogs/intelligent_investor_notes/53177.jsp
2014-05-30 16:05
Have we learned anything on Red chips company? Any companies in the market can be disguised as Red chips company Or under Pyramid Scheme Or even money laundry without knowing the Business and proper study and Investigation. So many new Version of it day by day.
2014-05-30 16:37
If I detect One they will come out with New Version. If I detect second One, they will come out with New Business Model.
2014-05-30 16:42
One question, where do you get/ source your PE Ratio from?
How do you count it?
2014-05-30 21:37
I know what is PE. DO YOU?
I highly doubt the relevance of your calculations on "PE's"
Hartalega PE 2.93??? Assuming the average PE ratio for stocks is 12,
Then Hartalega "SHOULD BE" Priced at RM 24 (Rm6x4)(-approx) according to your "true value" of the stock??? Lol?
I think you got your calculations for PE for most of the stocks above wrong.
Therefore, they aren't really "cheap" if you were to base it on PE
http://www.bloomberg.com/quote/HART:MK
http://www.bloomberg.com/quote/WELL:MK
2014-05-30 22:40
Hi Foresight123 , thanks for highlighthing.
Yes. I aware of that. NOBY did highlight to me on his earlier comment. Some of the companies might change NOSH due to corporate exercise and it is not tally with the NOSH on Financial Year End.
I will take note on this and will collect the latest data from quarter report when perform thorough analysis.
2014-05-30 23:00
Low PE=Cheap is just like you rent a shop RM1k per month (xyz) vs a shop RM10k per month (KLCC or time sq), same management for two shop, which shop can make money
2014-05-31 11:46
Can you give P/E data base on latest quarterly result which ended yesterday?
Like so many people comment here, I doubt your figure is true.
2014-05-31 19:06
http://www.bursamarketplace.com/index.php?ch=ch_themarket&pg=pg_tm_screener
what are your comments on this screener??? is anything lacking here, example ROE and others? please give your oppinion on what is lacking
2014-05-31 19:10
Hi Heng611,
Please don't get me wrong. I am saying to buy a good companies in a relative cheap price. But not a ordinary company.
And, I think your analogy is not right. Maybe you can think that to buy a shop in klcc with good business in a relative cheap price. This should be what a value investor target for.
2014-05-31 21:06
Yes. It is not based on latest quarter but it is based on FY end. I will only go in to more detail later.
Please take note that "This is not the final list yet as a thorough analysis need to be carried out to further examine the companies in the list."
2014-05-31 21:07
Hi Heng611,
To make my idea more precise, the main purpose is "Buy companies with strong histories of profitability and with a dominant business franchise in a relative cheap price (at a discount to intrinsic value). "
2014-05-31 21:10
Those companies might be in your groceries basket that is why they are there every month.
2014-06-01 01:54
But i don't think you will do that.
You start out with the mentality of Not learning the Business but to Buy everything that is cheap and appears strong in numbers; so you will end up Buying everything that is cheap and convincing yourself that is the good Business.
2014-06-01 02:04
Well, what can we do? Good Business is hard to find. So we have no alternative and to keep screening and screening. Is that so?
2014-06-01 02:06
Cheap is the first thing in your mind. Second is sell quickly at intrinsic value. Third Only is Good Business. That means you are comprising and your priority is different.
2014-06-01 02:09
But where to find the God damned Good Business? So we have no alternative But have to do it the other way around. No choice. How can it be wrong if the company is having strong number right??
2014-06-01 02:14
Unconsciousness will produce Unnecessary Attachment.
High consciousness reigns supreme.
2014-06-01 02:17
IF i put it this way How can Red Chips company be wrong if the number is so strong?
2014-06-01 04:38
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ipomember
how do you calculate P/E? Just a gentle reminder, when doing financial analysis, its better and advisable to look beyond the figure. Take whatever figure from the report and work out the maths is not pratical.
2014-05-30 14:16