Each post contains a brief description of the assumptions that he’s using and a link to the valuation on the Valuecruncher site, where you can interactively change some of these assumptions and see how it changes the underlying valuation.
For example, see what he thinks about these companies:
- Fletcher Building
- Michael Hill International
- Air NZ (remember, if you’re a NZ taxpayer you’re an Air NZ shareholder)
- Sky TV
This week he’s trying something a bit different.
He’s nominated Rakon as the stock of the week, and rather than just publishing his own valuation he’s asking: what do you think it’s worth?
At the start of September a share in Rakon was worth about $3. Today, just a few weeks later, the same share is worth just slightly above $1.
Obviously it’s a pretty volitile time for all stocks at the moment, but Rakon has also announced that sales are slowing and their expected profit this year will be much lower than previously expected as a result.
So, how does that feed into the valuation?
At $1 per share, is that cheap, or a fair price, or still too expensive?
Valuecruncher provides a starting point for a valuation by automatically generating estimates for each of the key inputs.
As I type this is calculating a valuation of $1.82, and the current market price is $1.04, suggesting that the shares are 75% undervalued (i.e. cheap!)
But, when you look at some of the inputs it’s using to come up with this valuation there are some things that look a bit optimistic given the recent announcements.
So, let’s play with some of those assumptions …
In my valuation I’ve assumed slightly lower revenues and profit margins (the grey lines show the starting assumptions, the blue bars show my values).
I’ve also assumed a lower terminal growth rate (which is the amount of growth beyond the initial three years), at 7% rather than 8.5%.
This leaves me with a valuation of $1.02, which is more-or-less the current market price.
So, if you’re comfortable with my assumptions then you could say that the current price is about fair value.
What do you think Rakon is worth?
This is not intended to be a detailed analysis, and anyway I’m no expert and am mostly following my nose, so I’ve used round numbers.
In case it’s not blindingly obvious, please don’t buy or sell on the basis of what I’m saying here – this is not investment advice.
I have some Valuecruncher shares but no Rakon shares.