Monthly Archives: December 2012

Bio-Reference Laboratories Analysis & Valuation

BRLI logoBio-Reference Laboratories (BRLI) was ranked tier 1 in a recent stock screen for companies that exhibited steady, predictable, growth with little debt. As part of the value investing workflow we developed in an earlier article, a detailed analysis must now be conducted, followed by a determination of BRLI’s intrinsic value.

Bio-Reference Laboratories is a company which provides clinical testing services to customers primarily in the Northeastern United States. The customer base includes physician offices, clinics, hospitals, employers and the government, and it is the fourth-largest testing services provider in the country. In addition to standard tests, Bio-Reference Laboratories has great expertise in cancer pathology through its GenPath unit. Also of note is the GeneDx genetics laboratory, which is a leading provider in the diagnosis of rare genetic diseases. Continue reading

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Calculating the PV & FV of Investments with Excel

microsoft-excel-logoMost of the stock valuation methods we use as value investors require some form of calculating the present value of a future investment, or determining what a dollar amount today will be worth X number of years in the future. What we are talking about here are present value and future value calculations. The equations themselves are not that complex, but Microsoft Excel has both functions built-in, so why not take advantage of this. Continue reading

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Determining the Intrinsic Value of a Stock using EPS Growth Capitalization

Determining the Intrinsic Value of a Stock using EPS Growth CapitalizationValue investors are concerned with determining what’s called the intrinsic value of the companies they wish to invest in. This intrinsic value nearly always differs from the actual trading price of the stock, presenting us with opportunities to buy for less than the company is really worth! See my recent article, “What is the difference between price and value?” for more on this topic. Today we’ll look at one of the popular methods of calculating intrinsic value using an estimated EPS growth rate and future PE ratio. This is called the EPS Growth Capitalization method and is detailed below. Continue reading

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Rue21, Inc. Analysis and Valuation

Rue21, Inc. Analysis and ValuationRue21, Inc. (RUE) was one of the stocks ranked tier 1 in a recent stock screen. The screen attempted to identify stocks that would exhibit predictable growth and that carry little to no debt. Rue21 satisfied all of the identified criteria and now we are tasked with investigating the company further in an attempt to identify any red flags that would preclude our inclusion of this company in a value investment portfolio. These are all steps of the value investing workflow we developed in an earlier article.

Rue21, Inc. is a clothing retailer targeted at teens, with stores across most of the United States. Stores are located primarily in small towns where there is less competition, yet the company offers very fashionable clothing items and changes themes frequently to keep “fresh”. We will now examine the company in detail and seek to determine an intrinsic value, margin of safety, and target entry price range. Continue reading

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Stock Screen for Predictable Growth & Low Debt

Stock Screen for Predictable Growth & Low DebtIn the previous article we developed a value investing stock selection criteria based on companies that exhibit predictable growth in earnings, sales, and equity, and have low or no debt. This is called the PGLD criteria and we will now use a stock screener to see what stocks are able to meet it.

We will use the Finviz stock screener for this exercise, as it’s free and offers the ability to screen against virtually any fundamental, technical, or descriptive criteria possible. The only exception is BVPS growth which we will have to handle manually or with another tool. Continue reading

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Stock Selection Criteria: Predictable Growth & Low Debt

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Defining a suitable stock selection criteria is step #1 in our value investing workflow. It’s critical that we select only those stocks that will allow us to calculate a valuation with an accuracy we’re sufficiently confident in to enable proper execution of our value investment strategy.

Selected stocks firstly must be highly predictable. A highly predictable company will allow us to determine an intrinsic value with a high degree of confidence.

Secondly, we are looking for high quality stocks. Quality ties in closely with predictability and is defined by the company’s ability to meet a number of criteria with respect to consistent growth and return on capital. This stock selection criteria will seek to choose only the highest quality companies with a stellar record of consistently high growth across a number of metrics.

Finally, we will seek to limit our selection only to those sectors and industries within which we have at least a cursory understanding of the business. This will allow us to further screen our stock selection against possible red flags or opportunities that may not be present in the numbers themselves. Continue reading

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How to estimate future PE ratios

Much the same as future EPS growth, estimation of future PE ratios is an important skill to have in place as a value investor. A company’s price to earnings ratio (PE) is a relative measure of how expensive or cheap a company is – check out this primer explaining what factors affect PE and why it’s important. In this article we’ll look at a few different techniques to estimate future PE ratios. Continue reading

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Calculating CAGR for historical data with Excel

One very common task that we are faced with when analyzing historical data is the calculation of compound annual growth rate (CAGR). While possible to calculate by hand, it’s a somewhat tedious equation so fortunately for us Microsoft Excel has built in functions to do the calculations for us. This quick tutorial will show you how, using historical EPS data for Caterpillar (CAT). Continue reading

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How to estimate future EPS growth rates

One of the most important factors that affects a company’s share price is the expected growth rate of the EPS (earnings per share). It logically follows then, that value investors would factor this important piece of information into the determination of a company’s intrinsic value. For most valuation techniques, the future EPS growth rate is the most important and influential factor in arriving at an accurate valuation. Fortunately, there are a few simple methods we can use to determine how to estimate the future EPS growth rate. Let’s see how. Continue reading

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Value Investing Workflow: The basic concepts

A workflow is a series of specific tasks or criteria that must be fulfilled in the course of reaching a larger goal. Our goal as value investors is to find, evaluate, purchase, and ultimately sell for a profit, the stock of publicly traded companies. There’s a series of steps required to be successful in this endeavor and the easiest way to approach the problem is by following a step-by-step approach. Following is the basic concept of a value investing workflow. Continue reading

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