There are some stocks which may appear cheap because they are trading at
a low valuation metrics such as PE, price to book value ratio, cash flow ratio etc..
These stocks are often characterized by recently falling stock prices,
low valuation metrics and large cash holdings.
Not exact matches
I totally agree with you and with Buffett; nonetheless there's one question, that came to my mind regarding market
valuations: Assuming bonds and interest rates go even
lower as they are today, at which level (pe ratio or Shiller pe ratio — or whatever
metric you'd like to take) would I call the market of today a bubble?
In fact, Celgene and Shire are the only large - cap biopharmas with
lower valuations based on this particular
metric right now.
One of the great anomalies of investing: The historical long - term outperformance of certain smart beta or factor - based strategies relative to the broader equity market (think choosing stocks based on their
valuations, momentum,
low volatility or quality
metrics such as profitability).
It can place me in the «caricature» camp for value managers, because my
valuation metrics are usually
lower than most.
We acknowledge Pepsi is expensive on traditional
valuation metrics and expect it will remain so, especially in a
low yield environment.
In that sense all analysis of stock market based on historical
metrics do nt make much sense since composition of stocks is entirely different in different era and as more capital efficient business model evolve and their time to market cycle shrinks stocks likely to command higher
valuations and suddenly
lower valuations during short period of time like already happening for many technology companies and as influence of technology on overall cost structure of companies increases (for example: robotics replace many of employees cost etc)
valuation matrix of most companies likely to get affected dynamically in short duration of time than in the past.
We do not see equity
valuation metrics falling back to historical means in an environment where earnings are staging a sustained recovery and long - term rates are
low.
The value factor formed on B / P is likely to load on
low profitability / junk companies, whereas the aggregate
valuation metric may be better at identifying quality and thus may do a better job of predicting the subsequent return.
Thus, traders and investors using aggregate financial accounting numbers to derive superficial financial ratios (e.g. profit margin, return - on - equity) and
valuation metrics (e.g.
low price - to - earnings,
low price - to - book) without understanding the underlying business model, the related - party transactions artificially inflating the aggregate financial numbers and the data generation process in the financial footnotes can be misled.
Deep Value is also a practical guide that reveals little - known
valuation metrics that activist investors and other contrarians use to identify attractive, asymmetric investment opportunities with limited downside and enormous upside — undervaluation, large cash holdings, and
low payout ratios.
(Note: For the reader's information and convenience, follow this link to a FAST Graphs ™ portfolio review of the complete list of the S&P 500 constituents and key fundamental
metrics presented in order of highest total estimated return to
lowest based on current
valuation and estimates of future growth.
Finally, we examine
valuation metrics used to identify the characteristics that typically attract activists — undervaluation, large cash holdings, and
low payout ratios.
I totally agree with you and with Buffett; nonetheless there's one question, that came to my mind regarding market
valuations: Assuming bonds and interest rates go even
lower as they are today, at which level (pe ratio or Shiller pe ratio — or whatever
metric you'd like to take) would I call the market of today a bubble?
If a share's genuinely «bad» — say, in terms of excessive debt, poor margins,
low return on equity, erratic P&L record, etc. — then logically, those sub-par financial
metrics will automatically get incorporated into your stock
valuation anyway (in suitably quantitative fashion).
Long - term challenges in its core business segments along with value destroying management are two reasons for these
metrics grinding
lower but at a certain point,
valuation can become rather compelling.
Again, it's uncertain whether investors will push
valuation metrics down to the
lowest points of their historical ranges.