Value Investors Assemble - Intrinsic Value

Hi all

Can I ask for some validation on how I’m calculating Intrinsic Value.

Please note: The stock does not offer dividends currently, therefore I’m simply doing the following;

Net Income / EPS = Intrinsic Value

Is this oversimplified or close enough?

Also opening this up into an explosion of opinions so long as one of these answers gets a nice :white_check_mark: in the end. :slight_smile:

Thanks for advance (just for you @Richard.W :wink: )

Seriously though, cheers for looking.

JOE.

There are different methods that doesn’t help.

A simplistic method is EPS x P/E ratio assuming nil growth prospects.

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You could do an asset based view as well, which is simply to take the figure from the accounts but that also assumes nil growth.

Given you can pull back data easily - google finance, you could probably build a simplistic formula based spreadsheet to look out and pick your value stocks without sentiment priced in.

@Joey_Fantana name-checked me but I don’t have anything much to contribute on metrics. I think the idea of measures such as you suggest are interesting. There is an article in Investopedia describing several.

When considering what to buy I look at what various places are saying (Tipranks, Simply wall street, Merrill Lynch, Yahoo news, Jim Cramer’s Mad Money, Financial Times). The metrics I look at are dividends, p/e, sector, and whether my current position has gain or loss. Some purchases I have made in 2021 in my Invest account are KO, AMD, WIX, UAA, EEDM. These thoughts go through my mind.

KO: has buy ratings from Morningstar and Merrill Lynch. Price appears to be depressed due to pandemic, but pays reliable 3.4% dividend. I am underweight vs its weight in the S&P 500 and have a larger holding in PEP, which has done well and is also buy-rated by analysts. I have bought a bit more of PEP and SBUX too. Just a place to dump some spare cash, expecting safe dividends rather than great losses or gains. I think 1% of my portfolio in KO and 1.2% in PEP is good. KO is at 49. Analysts have price targets of 55-57.

AMD: Also buy-rated by analysts. I have 2.8% of my portfolio in INTC, so this is a small hedge. When one has owned a stock like INTC for decades it becomes difficult to sell because of the taxable gains. INTC still has 3% dividend. AMD pays no dividend. I am underweight in technology.

WIX: I have been using their web authoring product and am impressed by it. It is on US1 list of recommendations from BoA. Has done well, up 31% since I bought.

UAA: I know a director and wanted to take an interest. Up 22% since I bought. I am light on the consumer discretionary category. However, a warning is that it is “underperform” and “sell” rated by analysts.

EEDM: an ETF to increase emerging markets exposure, to make sure I am not only buying US stocks. I have VFEM and EMIM, but want a different instrument. VFEM and EMIM positions already contains large pregnant gains, so adding money there becomes difficult to withdraw without triggering tax.

For Graham Intrinsic value:

Very explicit, only 3 fields you need to fill.

  1. Current share price.
  2. Sum of last 4 quarters EPS.
  3. Growth expected per year(eg for 10% per year put 10).
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Growth expected, is this Revenue growth? Thanks

Expected yearly growth rate of the company over the next 7 to 10 years.
I would say Graham meant Revenue.

The 8.5 in the formula is the P/E that Graham said a company with 0% growth should have. You can adjust that if you want, some use 7.

The Y is the the yield of the AAA 20 year bond. Don’t forget to change that. Today is 2.96%.

@Joey_Fantana hope your using this for KO as intended not for TSLA.

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Does T212 give you the EV and IV Ratios?

Would be a good idea to add it.

@Joey_Fantana What do you plan to do with this new found knowledge?

Thanks @Rygel - I did find that tool and use it for future estimation but it’s difficult as the company I’m looking at has only recently floated on the NASDAQ so I’m not likely to see any estimated growth remarks until the next ER in a few weeks, even then a quarterly report is unlikely to provide that kind of insight.

Also tough when they changed their business model/focus just a few years ago so the financials are a bit all over theplace as a result.

@Dougal1984 I’m just trying to up my DD game. It’s all well and good trawling through SEC filings and company presentations, but I still need to get better at taking those facts and using them to forecast future potential and set realistic price targets.

@Joey_Fantana just go to yahoo finance put in your ticker go to Analysis and use the estimated EPS and growth from there as imputs for the above calculator for a ballpark estimation.

:+1:t2: Also tried that. There is no analyst data yet. Seems to soon after floating.

To calculate an intrinsic valuation would be hard in this context as you don’t have much previous data to base your future cash flows. There would be a lot of guess work involved in this case.

If they IPO-ed recently, did they file an S1 and include future predicted revenues? Or a revenue aim for a particular year?

Also, considering that they pivoted recently, do they have large debt?

It’s GBOX. An uplist from OTC to NASDAQ, so the prospectus is just a refurb of their old one. Not much in the way of projected figures however I did glean estimated 2021 revs and income from an investor presentation. It’s just one year ahead though so again making things difficult.

No debt though. Good pro point.

Okay, I don’t know much about the company a part from that a quick search indicates that it is to do with “blockchain payment solutions”.
Assuming no debt and having one set of revenue numbers. Definitely good news if it has no debt, hopefully that also reduces the chances of dilution as well as the risk.

Without knowing revenue, growth, margins and some reasonable forecasts you can’t really come up with an intrinsic value based on Discounted Cash Flow (DCF).

However, based on some assumptions you might be able to come up with your own “reasonable price forecast”. It might also be useful to then gauge how well the company is doing in the future (looking back). This is very subjective and is not an intrinsic valuation but more of a pricing.

This is how I would approach it (in the absence of data for a DCF/NPV), everyone is likely to have a different method:

I would start with the company itself and decide what date you want to evaluate it against. This could be how long in the future you think that you would be willing to hold for waiting for it to grow. Let’s assume maybe 5 years, so 2026 for the purpose of the example. I usually look at 10 years (even if I may exit much earlier, after 5 lets say), but considering how uncertain this estimate will be, due to the lack of data, I wouldn’t go much further than 2026.

You then need to come up with a revenue growth for 2022. I would probably look at their RNSs (equivalent in the USA) and depending on how much they have disclosed you might be able to see contracts or partnerships coming in the pipeline.
If you get any individual large clients you might want to look into how many payments go through them and attach a percentage “cut” that BGOX might take. Obviously quite low. I don’t know much about payment providers, but say maybe 0.05% as GBOX might just be an intermediary.
This could give you some revenue and an indicative growth that you might be able to extrapolate to 2026 (Within reason). Make sure you are comfortable with the growth in individual years.

Alternatively, if you have no idea you would just have to decide a number that you think is reasonable based on what you know. This could be based on the growth of the sector, although as it is a small company if it is successful you would be expecting larger than average growth.

What you want to be looking at is profits (or alternatively operating free cash flows), so once you decide on some revenue numbers I would probably then multiply it by some kind of “net margin percentage” (in decimal, less than 1) to come up with a profit. This could come from the companies current margin (and increasing it due to scale) or from similar companies (slightly larger ones though, maybe a mid-cap) looking at how much revenue is converted into profits.

You then select a “2026 Price to Earnings Multiple”, lets say 20 and use this to get the predicted market capitalisation. Divide it by the number of shares (current shares + insider outstanding options) and you have your predicted share price :smiley: .

I think that with these companies you are to a certain extent betting on the chance of selecting “the winner” (or one of the few winners). There is a lot of risk but also the growth has to be high. I would not select a final Price to Earnings multiple of over 25 as if interest rates increase by then it is likely that we will be looking at much lower market multiples around then. Also, that would be based on it being a very high growth company, if you are expecting it to grow by less than 25% year on year in 2026, then it is probably best not to use a multiple of more than around 18 ish to be safe.

Note: If you had more information I would probably suggest trying to come up with a basic Discounted Cash Flow model going further into the future (not just 2026). Once a full years worth of reasonable data and some future forecasts you can probably give it a try. It might be possible once you get an annual report.

Note 2: Something worth noting is that you might be able to find forecasts in the press or from analysts, maybe not now but in a few months time. If not, why not drop them an email and ask them for any guidance that they can provide or that they may have provided in the past and that you may have missed?
You have nothing to lose.
https://irdirect.net/GRBX/contact_us
image
Were they reviously known as “Mzgroup”? Otherwise it is a very surprising email domain.

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Thanks for that @EquityInvestor - yeah I have done the majority of your suggestions there and have trawled their IR page (MZ Group is a separate company that manage IR for other businesses I believe) to get where I currently am, which is a compilation of their history.

There’s just been so much in the past few years to make estimation really difficult;

  • 2017/18 they changed their business model entirely, moving from real estate services to what they do now. That renders any Revs/Income/Profit prior to that point redundant as it refers to another business

  • 2019 they had massive, MASSIVE spikes in Revenue, particularly in Quarters 3 and 4, due to roll out of new functionality. Great for them but it buggers up the forecasting a bit

  • 2021 they’re forecasting huge revenenue increases due to finally getting their service and functionality into it’s next gen state. Their forecasted increase is over 2000%… come on!!

Best bet I’ve got for consistent, and perhaps organic, growth are quarters 1-3 in 2020.

I think I’ll just need to wait for the next ER this month to get a better view. At least then I’ll have a full year to go on.

You do raise a great point on their processing numbers though and that’s what I’ll be working on this week, if they are disclosed anywhere! Cheers again

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So, what did you decide in the end?
Is it worth it? (its current price)

Still ongoing…

  • Next ER isn’t due til the 12th

  • Just got a response yesterday from their IR providing processing volumes but haven’t factored those in yet

  • Currently been a bit distracted by the absolute decimation of my portfolio!

I’ve taken a small position as I think the current correction is probably a good time to do so regardless, and the amount invested I’m not going to lose sleep over. Plus there were enough favourable factors to convince me to pull the trigger outside of the intrinsic value; I just want to know that to assist me in establishing a PT.

I’ll get back on it in the morning and plug in those processing volumes.

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Look forward to seeing if we should buy or not, and what target price you think they could achieve :slight_smile:

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This went a bit stale, apologies, but I lost the time I had to look into it and also gave up a bit as I just couldn’t figure enough out without more info.

That said I found this link that gave me a good steer on the company;

https://seekingalpha.com/article/4416783-greenbox-pos-blockchain-stablecoin-payment-processing-impact

And decided to look at this from the trading multiples angle.

Using 2020 revs, GBOX are trading at 90x that, based on today’s price (granted they have now leapt about 40% since the last post on this thread, the multiple was still horrendous at the $14 mark).

However using their forecasted 2021 revs ($45m), the multiple comes down to a more palatable 17x. This seems about right for a growth stock (the acceptable threshold in today’s market seems to be 20x; anything more and it’s overexerted territory and many I know would say 20x is bad anyway).

Couple that with the latest news that their original processing volumes forecast was way too conservative, the revs for 2021 haven’t been revised but need to be. That article above suggests $75m, possibly a bit over bullish, but that brings the trading multiple down to 10x.

Based on 2021 forecasted revenues, if investors were comfortable with a trading multiple of 20, that would put the SP in the region of $36-38, which funnily enough was my finger in the air figure when I was still figuring it all out, albeit my PT was a much broader $30-40.

Fair enough this isn’t intrinsic, but probably the best I can do at this juncture given the lack of facts and reporting due to the aforementioned reasons.

My finger in the air PT came from comparing to similar companies (eg. proportioning down from the likes of Square, Affirm and Paypal) and similar sectors (GBOX have recently gone fully vertical and launched a white label solution, so I took into account SaaS firms such as NCNO and DCT, who are both in the $40-55 range, which was my more bullish PT).

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