Tuesday, July 04, 2017

ING stock intrinsic value Benjamin Graham valuation

The Intelligent Investor by Benjamin Graham, was first published in 1949. The Graham Defensive Stock Screen used here, was described in Chapter 14 of that book. It is fascinating for me to see how many stock prices follow the simple geometric average calculation of 1,5x Book Value and 15x Earnings per Share of the Graham Number. See https://en.wikipedia.org/wiki/Graham_number

ING 's book value and profit have increased since my last evaluation in October 2016: http://sinaas.blogspot.nl/2016/10/ing-stock-intrinsic-value-benjamin.html


ING is in the Financial sector, which is one sector that this methodology avoids. Technology and financial stocks are considered too risky to invest in. Several of Graham's criteria, like the Current Ratio and Debt to Current Assets, do not apply to financial companies. As a result, the company will not be able to pass this methodology, although we will include the remainder of the analysis for informational purposes.

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. ING's sales of €17,491 million, based on 2016 sales, pass this test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] Long-term debt must not exceed net current assets. Companies that meet this criterion display one of the attributes of a financially secure organisation. ING is a financial stock so this variable is not applicable and this criterion cannot be evaluated.

LONG-TERM EPS GROWTH: [FAIL] 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. EPS for ING haven't increased in the last 10 years the company fails this criterion. 

EARNINGS YIELD:  [PASS]  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. ING's E/P of 7% using earning per share estimate of €1,20.

Graham Number value: [PASS]  The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. ING has a Graham number of (15 x €1,13 EPS x 1,5 x €12,84 Book Value) = €18

Voor een gratis ebook over Graham z'n meest succesvolle pupil zie: http://www.warrenbuffett.nl/  

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

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