Sunday, June 04, 2017

DSM intrinsic Value and Price development

DSM has recently been increasing Earnings per Share, Price has led the way.

SECTOR: [PASS] DSM is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. DSM's sales of €7 920 million, based on 2016 sales, pass this test.

CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. DSM's current ratio €5 041m/€3 118m of 1.6 fails this test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for DSM is €3 478 million, while the net current assets are $1 923 million. DSM fails this test.

LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. DSM's EPS growth of 50% passes this test.

Earnings Yield: [FAIL] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. DSM's E/P of 6% (using last years earnings) fails this test.

Graham Number value: [FAIL] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. DSM has a Graham number of (22,5 x €3,12 EPS x €34,68 Book Value) = €49,5 and fails this test.

Dividend: DSM pays a dividend of 1,75/67 = 3%

Conclusion: There is no easy conclusion to be made here. I didn't predict the good results over the past year. 


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