I started investing in the stock market more than 30 years ago. First like most people, I just listened to the rumours and hypes in the market to decide which stocks to buy. You know those days you went to the Broker firm and many punters sitting and standing around and talked about which stocks would go up or down? That experience of course didn’t end well for my investments. Later I started to read some magazines such as Malaysian Business, Investors etc. I learned some simple valuation metrics especially price earnings ratio and price-to-book. So I happily used them to gauge if a stock is worthwhile to buy after hearing the rumours in the market. That was a big improvement, even in today’s standard, as you can see from i3investor, few have any fundamental investing knowledge, nor care about it. Unfortunately, my experience did not turn out well too. Well that was only my personal experience. How I wish I had learned some fundamental investing at that time to do some simple valuations of stocks as below, and of course also must know what a good company looks like so that I could buy good companies at cheap prices. Then I can confidently follow what Warren Buffett said,

"I always knew I was going to be rich. I don't think I ever doubted it for a minute."

So young folks, don’t miss learning about fundamental investing and let the power of compounding to build up your long-term wealth. Even retirees should consider using fundamental value investing to preserve your wealth in the stock market, safely but surely.

I have shown that fundamental investing has worked in US, and it has also worked in Bursa, and it works on its very own.

http://klse.i3investor.com/blogs/kcchongnz/50988.jsp

http://klse.i3investor.com/blogs/kcchongnz/78049.jsp

Hence I do have some results to show and do not need any blessing from this guy below:

[Posted by TylerDurden > Oct 9, 2015 07:53 PM | Report Abuse

KC,
I must admit your answer on Pintaras' business outlook is underwhelming. It seems to me that you lack understanding of Pintaras business fundamentals. You dont even understand the overall industry. Anyway, one man's meat is another man's poison. I say good luck with your fundamental value investing.]

And there are many more articles and portfolios of stocks published in i3investor with all the reasons and analysis that I have written, giving evidence that fundamental value investing works very well.

I have just written an article to compare which piling company, Pintaras or Econpile is a better company in the link below:

http://klse.i3investor.com/blogs/kcchongnz/84114.jsp

My conclusion was both companies, Pintaras Jaya and Econpile have done equally well in last year’s financial performance in terms of ROA and ROE. Those are the yardsticks I often used to gauge if a company is good, not some forecast and market outlook thingy.

However the things I like most are cash flow and a history of good performance. In this case, Pintaras way excels Econpile. Hence my preference of which is a better company is quite clear.

A better company doesn’t mean it is a better investment. It all depends on the price. A Ferrari selling at RM10m is a very bad buy. On the other hand, a new Honda Accord selling at RM20000 is definitely an excellent buy.

The Simple Valuation Metrics

This was what I would have done when using some simple techniques to compare companies without looking at their performance and other more appropriate valuation metrics in the later part of this article. I would have bought Econpile and would never even looked at Pintaras. Table 1 below shows the reasons why I would buy Econpile.

Table 1: Some simple ratios of Pintaras and Econpile for 2015

The earnings metrics above show Econpile is cheaper than Pintaras to invest in. You will be surprised some “investors” think Econpile is much cheaper than Pintaras because it is trading at a low price of 90 sen compared with RM3.65 of Pintaras, no kidding. But of course all of you would know that Econpile is cheaper because of its PE ratio at 10.3 is lower than that of Pintaras of 11.4. The enterprise value of Pintaras at 1.6 time sales is also higher than the 1.1 time that of Econpile.

In comparison between Pintaras which has a lot of cash versus Econpile, I think the fairer comparison is the enterprise value. I have explain why enterprise value is a more appropriate metric in this link:

http://klse.i3investor.com/blogs/kcchongnz/49016.jsp

Table 2 below shows that Pintaras with its EV 5.7 times its earnings before interest and tax (Ebit) is cheaper than the 7.1 times of Econpile. Or put it the other way, the earnings yield (EY=Ebit/EV) of Pintaras at 17.5% is clearly higher than the 14% of Econpile and hence a better buy. The dividend yield of Pintaras at 4.9% is also much higher than the 2.8% of Econpile.

Table 2: Enterprise valuation

I have deliberated many times that cash flow is more important than earnings. In terms of Price-to-CFFO, Pintaras is also much more attractive at 8.5 times its CFFO, whereas Econpile is twice more expensive at a price of 17.5 times CFFO. FCF wise of course Pintaras at a price 14.5 times FCF is better than the negative FCF of Econpile.

Which valuation metric to use?

The above comparisons show that Econpile is cheaper when using the commonly used price-to-earnings ratio for equity shareholder. However, the enterprise value should be a more appropriate comparison as both companies have quite different capital structures; one with a lot of excess cash and no debt, and the other with some debts. In this aspect, Pintaras is cheaper. Cash flows valuation wise, Pintaras is a much better investment. Besides it gives a much higher dividend yield.

We should not forget that price-to-book wise, Pintaras at a P/B value of 1.7 is cheaper than the 2.4 of Econpile. The Fama and French three factors model has shown that low price-to-book companies have outperformed the high price-to-book companies in a significant manner.

K C Chong