Valuing companies not suited for value investing

[FFNow]

I don't know if this is the right forum to ask but here goes my question. There are many companies with a wide moat (eg. Olam, Sembcorp, SMRT, Capitaland) which might not have good cash flow and consistent revenue, etc that value investors look out for. However, these companies can be very profitable for the long-term.

So, how does one go about valuing such companies that are pegged to Singapore/Asia growth story?

[plaktoz]

value investment? i think quite hard to find bluechips now. since all the ratios are on the high sides. if want to find value, prob have to look at the blue chips laggard like capitaland and nol.

[FFNow]

They are not value investment per se. All these companies need a different way of valuing as they don't fit the value investment criteria. So, how do people investing in them value it?

[Musicwhiz]

value investment? i think quite hard to find bluechips now. since all the ratios are on the high sides. if want to find value, prob have to look at the blue chips laggard like capitaland and nol.

I probably won't classify Capitaland and NOL as value investments at all.

[intellect]

When crisis strikes and Capitaland fall more than 30%, it will likely to be value investment.

[yaosheng]

i am no expert but here's my 2 cent's worth. IMO, companies are valued based on industry-specific or company-specific metrics if the business model is unique.

shipping (NOL) - P/B basis, if analysts bullish on industry/company, tag a premium.
property developers (capita) - P/B or RNAV basis, if analysts bullish on industry/company, tag a premium.
i believe most value SMRT using DCF since the business model generates pretty consistent returns.
i am not sure abt olam and sembcorp but i would say analysts use DCF as well

i would suggest taking a look at analysts reports for their valuation methodology. you might not agree with them but it is always good to know the industry perspective and see how their assumptions varies from yours

[Nick]

All companies are good companies at the right price. The trick is finding out the right price ! If a company is generating consistent cash-flow (generally service related companies and those on long term contracts), DCF is a good method.

[FFNow]

Nick, the problem is that such companies don't generate consistent cash-flows. So how to value those?

[Nick]

Nick, the problem is that such companies don't generate consistent cash-flows. So how to value those?

If you intend to invest in an order-book driven company based in cyclical industry (ie property development or construction), you need intimate knowledge on the sector trend to pounce when the cycle is at bottom. Alternatively, look at their EPS trend over an entire cycle to determine their average EPS. In cases where assets are some-what liquid or fungible (stocks, commodities, bonds and to some extent properties), RNAV may be useful.

I am not really of much help here. Personally, none of my investments exhibit cyclical earning patterns.

[dydx]

All companies are good companies at the right price. The trick is finding out the right price !

I advise you to re-think this, especially the 1st sentence. For sure, smart investors will not buy into dubious companies/businesses at any price - even at very low price!

Generally speaking, good companies should be those engaged in at least good enough businesses - steady and well established; consistently profitable and generating positive FCF; with decent and properly kept business assets, etc. - managed by decent, competent, financially prudent people with at least a certain track record. Rationally speaking, buying into a business/company at the (so-called) right price should only follow if the business is assessed to be good enough.

Apart from others, dubious companies would include those whose management pursue aggressive growth and like to tell a good, positive story about their businesses and growth plans to the market-at-large or any investor who shows some interest in them; those which raise new capital - especially through share placements - very regularly and have no qualms using all kinds of methods or instruments (warrants, convertible bonds, etc.) to do so; and those who deliberately make their issued share base (in terms of the number of shares) very big, and their share price low and very affordable in order to entice short-term investors big and small to trade their stocks.

I hope the above will help you and others to choose and invest better.