Thursday, November 01, 2018

Ordina intrinsic value is lower than stock price

SECTOR: [PASS]  Ordina 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. Ordina's sales of €352 million, based on 2017 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. Ordina's current ratio €86m/€89m of 1.0 fails the 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 do not meet this criterion lack the financial stability that this methodology likes to see. Ordina has no long-term debt, which is a plus, the net
current assets are minus €3 millionOrdina fails this test.

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. Companies with this type of growth tend to be financially secure and have proven themselves over time. Ordina made a loss in 2013 and 2015.

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. Ordina's E/P of 3% (using this year's estimated 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. Ordina has a Graham number of (15 x €0,4 ? EPS x 1,5 x €1,6 Book Value) = €1,16 and fails this test.

Dividend €0,02/€1,6 = 1%

Conclusion: As I work through the AAX constituents, I notice that companies with a low stock price under say 5 Euros are often not Money Making Machines. There is some logic to that if the company is getting more valuable the price of stock increases and vice versa. Not a stock for the Graham Defensive Investor.

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