Benjamin Graham is the father of value investment. He is also the teacher of Warren Buffet. Anyone who think they are a value investor is lying to himself if he has not read the book ‘The Intelligent Investor’ and ‘Securities Analysis’. You can google free ebook from the internet.
This article analyse Want Want vs First Tractor as shown on Chapter 13 ‘A Comparison of Four Listed Companies’ from ‘The Intelligent Investor’. You will appreciate the analysis from this article if you read the book first.
Benjamin usually looks at earning history and divident history of a company for the last 7-10 years which I don’t have. However we can still look at the following; Want Want is value $HK46 Billion vs $HK10 Billion, Sales of both companies are similar, Want Want has 4x the size of First Tractor but generate similar business. Net income of Want Want is 5x that of First Tractor. This is reiterated in the earning/book value 8% for First Tractor and 26% for Want Want. Want Want has a very small book value $0.42/share Want Want vs $3.25 First Tractor. Although five years earning history cannot be taken seriously, Want Want’s earning appears to be growing at a slower rate.
Want Want has a higher profit margin and earning/book value and is rewarded with a higher PE ratio when compare with First Tractor. One thing to note is that First Tractor has a very low Price/book value.
Conclusion
Graham would never buy anything with PE over 30. He prefers to buy it under 11. That does not mean Want Want is not going to do well. Based on my Discount Cash Flow analysis in the next article, the current PE reflects earning growth of 20% per annum. It might be possible. But it is certainly not cheap. First Tractor appears cheap but it is not managed efficiently. Graham would probably won’t think it is a great buy either.
History repeats that stock price usually overshoot. In Want Want’s case, share price might reach $4.20 before stabilising and will perhaps fall down to $3.8 level.
| First Tractor 2008 38.HK | Want Want China 151.HK | |
| Price May 20, 2008 | 3.8 | 3.48 |
| Number of shares common | 845,900,000 | 13,252,700,000 |
| Market value of common | $3,214,420,000 | $46,119,396,000 |
| Debt | $673,900,000 | $246,000,000 |
| Total capitalization at market | $9,916,000,000 | $45,854,400,000 |
| Book value per share | $3.25 | $0.42 |
| Sales | $6,775,000,000 | $8,427,958,000 |
| Net income | $237,804,000 | $1,356,185,600 |
| Earned per share 2007 | $0.24 | 0.107 |
| Earned per share 2006 | $0.09 | 0.077 |
| Earned per share 2005 | -$0.06 | 0.666 |
| Earned per share 2004 | $0.01 | 0.44 |
| Earned per share 2003 | $0.02 | |
| Current divident rate | ||
| Ratios | ||
| Price/earnings | 15.59 | 32.25 |
| Price/book value | 1.17 | 8.25 |
| Divident yield | 0.84 | 2.05 |
| Net/sales | ||
| Earnings/book value | 8% | 26% |
| Current assets/liabilities | ||
| Working capital/debt | ||
| Interest earned | ||
| Growth in pershare earnings |
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