Investing Basics - Feel free to ask the most basic questions

Stock Analysis & Valuation
104

I think, that principle should be applied for the sector that has huge growth potential.

As of now, it looks story is almost over for pharma.

105

When calculating PEG ratio , what is to be considered in denominator to calculate growth. Revenue growth , PAT growth or EPS growth.

Also should be we consider forward year growth or current year growth (which has been declared in the results.)

Thanks in advance.

106

Thank you for the encouragement and the go-ahead to ask basic questions.
I am a fresher - two years old.

I have been looking at a company Indiabulls Ventures. Looked at company history etc and on the charts I see that this stock has appreciated by over 500% in the last 6 months or so.

This sets off alarm bells in my mind but I am also wondering whether I may be missing an opportunity to invest. What are the basic things I ought to be looking for, as warning signs, in any company that shows such a spectacular performance over such a short time?

Grateful for any feedback. Thank you

107

@ishikaghose

Please read The Five Rules for Successful Stock Investing by Pat Dorsey. It is an excellent manual for investors and gives the best introduction on how to go about analysing a stock.

First try to understand the business by reading their annual report for last 3-5 years (atleast 3 years). Go through any brokerage reports that you may get about the company. Just don’t look at the target price on the brokerage reports :slight_smile:

Look for basic hygiene factors like ROE, ROCE are high; Debt/Equity is low; company makes consistent operating cash flows and profits.

Once you get a hang of what the company does, try to see if you can understand and project a range of sales and profit for the next 1-2 years. Assign a reasonable (start with being conservative) PE and see how the stock price might look like a year or two down the line.

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109

Thank you. I will start reading Pat Dorsey

110

Lets say at beginning of year 1st April a company has asset worth 2Rs and during the year company earns 1rs. On 30th of march company does a capex of asset worth 2 more Rs.

So the balance sheet at the end of year will have assets = 4Rs and P&L will have profit=1Rs. So eventually ROA becomes 25%. But practically ROA is 50% because half of the assets were bought just at the end of year.

Is my understanding correct or I am doing something wrong? If correct then should ROA be considered at all in analysis if we don’t know when were assets purchased?

111

average total assets are usually used because asset totals can vary throughout the year. add the beginning and ending assets together on the balance sheet and divide by two to calculate the average assets for the year. This can reduces this problem that you have mentioned.

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112

Have a question related to when to take a position in a stock.
For example - Mayur Uniquoters, Avanti feeds etc are few stocks that has been a multi baggger already.

Does this mean we shouldn’t be taking a position in this stock because it has already provided a huge return.
Does value investing applicable to those stocks which have already been discovered.

Can some one throw their words of wisdom.

Thanks,
Pandi

113

There are companies which have decades of compounding history. You don’t need to look further than HDFC Bank or Pidilite or Asian Paints to understand this. Looking back into historical stock prices is never a good idea when judging a business for the future. What you need to determine is what the future may look like.

My personal experience on some of the long term compounders has taught me that its important to buy and average up (in a SIP mode) as long as the future seems bright.

Also at times, because well discovered stocks have high valuations, prices may remain stagnant for months or years. You need to keep the faith, if the business is continuing to perform well.

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114

Do the expert investors here consider volume and technical analysis as well or do they purchase stock purely on the basis of fundamentals?

Is it also important to consider change in mutual fund holdings of a stock?

115

Thanks Abhishek, in summary the understanding is

For companies that have a huge potential for the future (stocks that are already multibagger) it still makes sense to make investment on a staggered manner as long as their growth story is intact.

116

If you are buying and selling for the short term, technicals do seem to matter. However, if your time horizon is longer term (>1 yr), it is more important to understand the business. Then technicals are more noise than signal :wink:

Mutual fund holdings are best ignored.

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117

How to know whether the company has diluted its equity in last 10 years at a glimpse?

Also, Is there any website where we can now what are the picks that they are buying these days?
Valueresearchonline is one site where they have the tool to search who is buying what but when we open the specific portfolio of that fund, that stock is not visible?

118
  • Go to MoneyControl.com
  • Search the stock you’re interested in.
  • Select “Financials” Tab
  • Select “Capital Structure” tab inside Financials.

You’ll find a table like the following.(Avanti feeds capital structure for example)

Capital Structure.PNG761×486 8.39 KB

You’re looking for “Issued Capital” column. Change in the value means that company is diluting its equity. Do note that “Shares (nos)” column do changed from 2014-2015 but capital has not changed. Because that’s a stock split. Splits and bonuses doesn’t count as equity dilution.

You can see Suzlon for instance keep on issuing shares Suzlon Energy Cash Flow, Suzlon Energy Financial Statement & Accounts

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119

Thanks @SriramSakthivel
One more thing I need to know- How to know the sectors which are getting large chunks of money from DII or what are the latest picks which DII are investing in?

120

Where can we find each industry related information/research reports and the short/long term outlook?

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121

Hi, just an innocent and naive question to all the experienced and expert investors.

How do you compare your investments to those of top performing mutual funds? For example, certain midcap and small cap mutual funds have managed to give more than 25% returns over a 5 year horizon. Have you’ll been able to beat these numbers?

Thanks

122

Hi Jstocks,
If you go to other sections where you find old recommendations you will come to know what kind of returns the stocks have given.

Regards

123

Hi Everyone,

My question to senior investors is that when I use screener or search valuepickr all I can see is that almost all stocks( with good fundamentals on the basis of what i have learned ) are trading very high on valuations. So being a new to this market how shall one approach to invest in stocks.
I have simultaneously started investing in mutual funds as well.

Any help is much appreciated.

1 Like