Hello you very intelligent and wonderful people that make up this forum. I truly hope you are doing well and having another successful week.
I have found when analysing growth stocks, such as Nvidia, using a Discounted Cash Flow Analysis to see if a stock is undervalued is usually not worthwhile. As fast paced growth stocks will always show as overvalued.
There is some investors called GARP investors, who focus on companies with earnings above broad market levels but without extremely high valuations. I kindly wondered please what other valuation metrics can be used on growth stocks before i start reading Annual Reports for a company for instance please? If anyone kindly had any thoughts on this i would be forever grateful and thankful, it would mean the world to me.
Sending you lots of good wishes and i truly hope you continue to achieve massive success with your investing. Very best wishes to you all and i hope you have a wonderful future.
The PEG ratio is often used. In essence it’s the P/E ratio divided by the expected earnings growth. Typically, expected earnings growth over the next year is used. And typically, PEG values under about 0.67 are considered to suggest that stocks may be undervalued. Jim Slater and Peter Lynch used PEG ratios.
Thank you so much for your response stehuk, what a truly wonderful person you are. That was an excellent response, thank you very much for your kindness.
I will bear this in mind that the PEG ratio is often used, which is in essence it’s the P/E ratio divided by the expected earnings growth. Thank you very much for your comments on this.
From a screener i hope to find promising growth stocks, that meet this criteria of having a low PEG ratio and other criteria such as a good Return On Investment and Growing Sales.
I then know that growth stocks get there valuation from future earnings growth. I please wondered how i could quickly evaluate how strong the growth stocks i have in my screener please? Could i compare the EPS growth rate for the last 5 years out of the stocks i have found, is there anything else that is important for growth stocks please? I then will only read the Annual Reports of the growth stocks that i feel have the most promise. If you kindly had any thoughts on this it would mean the world to me and i would be forever grateful and thankful.
Sending you lots of good wishes stehuk and i truly hope you achieve massive success with your investing and continue to have a wonderful life. With my every best wishes.
Growing sales and ROI are good indicators of likely growth, but personally I prefer Return on Capital Employed (ROCE) to ROI.
But how strong the growth stocks are is a more difficult question to answer. Essentially I would say that ideally you need to understand the business qualitatively. You may have heard of the concept of a “moat”, essentially how well is the company protected from competition and being in a position to have good pricing power long term so that ROCE (or ROI) is maintained or improved. Does the company have good cash generation (free cash flow) and can it reinvest this cash to increase sales rapidly without reducing ROCE.
As well as ROCE or ROI you could screen on operating margin. I would say a recent number of years average (say 5 years) is best for these.
It’s really a very wide topic. And I don’t really have a lot of expertise in this area. (I tend to use a factor based approach using a subscription site which does a lot of the screening type work for me and my approach is more momentum and value oriented.)
I would be inclined to keep screens fairly simple and not be too tight on the criteria, otherwise it’s very easy to get to the point of not getting any results from the screener. Generally, I would agree with your approach of cutting down the number of stocks to research and then reading the annual reports (I’d include interim reports trading updates and statements about acquisitions as well in further research.)
Thank you very much for your very helpful response stehuk, that was really kind of you. Thank you very much for your kindness and support, that was wonderful of you.
I am also fairly new to this, i took a Value Investing course, but realised that you can spend hours finding really good Value orientated stocks, but these can take years to realise there correct value. I would rather be in a good performing Growth Stock with a strong upward momentum. However i suppose its getting comfortable with an investment style you are happy with.
That was really kind of you to mention that Growing sales and ROI are good indicators of likely growth, but personally you prefer Return on Capital Employed (ROCE) or ROI. You also mention that as well as ROCE or ROI you could screen on operating margin. I would say a recent number of years average (say 5 years) is best for these. Thank you ever so much for your comments on this, it was really kind of you.
Can i kindly please ask once i have got my required stocks in my screener, how could i quickly on a preliminary basis rank them on a scale of 1 - 10, with 1 being the most likely to grow the most and 10 least likely. For instance Nvidia is expected to forecast to grow earnings and revenue by 23.2% and 22.7% per annum respectively. EPS is expected to grow by 24% per annum. Could i simply put the stocks in rank from 1 - 10 by there EPS growth. Say if Nvidia had an expected EPS growth of 24% put this as number 1, another stock was forecast to grow EPS by 18% per annum, put this as number 2 for instance please? If you kindly had any thoughts on this i would be forever grateful and thankful it would mean the world to me.
Regarding Annual Reports i used to read these word for word but found alot of unnecessary information. I like to focus on certain sections, About the Business, Cash Flow Statement, About Directors, Executive Compensation and Stockholdings. Do you kindly please think this is okay and is there any other sections you would generally find have the most important information please? If you kindly had any thoughts on this it would be highly appreciated and i would be forever grateful.
Sending you lots of good wishes stehuk and i truly hope you achieve massive success with your investing. Thank you ever so much for sharing your thoughts with me, you are a really wonderful and intelligent person. Have a lovely weekend. With my every best wishes.
As regards ranking by EPS growth, I don’t see any reason not to do that if that’s what you think is the most important factor. I’ve seen screens using PEG and screens using relative price strength (6 or 12 months) for this purpose on GARP type screens. Personally, I do something slightly more complex with my main screen, I download screen results to excel and I weight different factors that I’m interested in depending on how important I think the factors are. Then I rank each stock by an individual factor and do this for each factor separately. Then for each stock, for each factor I mutliply the stocks rank for the factor by the assigned factor weight, and add all the resulting weighted factors together for the stock, then rerank the result to give an aggregate rank for each stock taking account of all of the factors. When I do this the screen has few selection criteria but all the factors reported, and lots of stocks reported (about 700 UK stocks) and I let a sort by aggregate rank in the spreadsheet do most of the work and order the stocks in the way that I want.
On the annual report, I think the P&L and the balance sheet are always important. But it’s a matter of preference how much effort you want to put in. Some people like you and me don’t like too much information about a stock. Others are quick reading everything and very good at picking out salient points that are relevant to the investment case.
Thank you ever so much for your response stehuk, what a wonderful and kind person you are. I really appreciate your response very much, you are the most wonderful person on planet earth. I truly hope you are having a nice weekend.
I really found it fascinating what you said in terms of, i rank each stock by an individual factor and do this for each factor separately. Then for each stock, for each factor i multiply the stocks rank for the factor by the assigned factor weight, and add all the resulting weighted factors together for the stock, then rerank the result to give an aggregate rank for each stock taking account of all of the factors. That was wonderful of you, i really appreciate you sharing your comments on this, thank you very much for your kindness.
With you mentioning that the P&L and the balance sheet are always important, i agree with you very much on this. I please wondered if you could analyse the P&L account and the balance sheet, to give you clues for what to review further in the annual report please? For instance if debt is high, look further into the annual report on why this is please? If you kindly had any thoughts on this it would mean the world to me and i would be forever grateful and thankful.
I am very sorry to ask and feel embarrassed and anxious to ask as i dont want to ask you too many questions, as you have been fantastic, however would you kindly please be able to share more information on your factors for your stocks rank please? For instance are you kindly please able to share what stock screener you use and what factor you use please to rank a stock, then how you multiply the stocks rank for the factor by the assigned factor weight and add all the resulted weighted factors together please? If you could kindly please share any advice on this my heart would go out to you and it would be highly appreciated, it may help me refine my screening process and give me further ideas please.
Sending you lots of good wishes stehuk and i truly hope you achieve massive success in your investing and continue to have a wonderful life. Thank you ever so much for your kindness and support, its been really fascinating to talk to you, definitely you are an amazing person. Hope you enjoy the rest of your weekend. With my every best wishes to you.