Friday, February 07, 2020

Flow Traders Stock Price and Intrinsic Value guess


Assumption: EPS which was €3,84 in 2018 and €1,15 in 2019 will be €2 in 2020. 

SECTOR: [???] Flow Traders provides liquidity for ETP Exchange Traded Products. It went public in 2015 at a price of around €35, the price climbed to €50 and now has dropped below the IPO level. I  am not an expert and don't know how much of an "arms race' in technology is involved.

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Flow Traders' sales (Net Trading Income similar to Gross Profit Dollars?) of €383 million in 2018 passed this test. Net Trading Income of €216 million in 2019 failed 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. Flow Trader's long term results are difficult to determine because of its corporate history and recent IPO. 

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. Flow Trader's E/P of 10% (using a 3 year average Earnings) passes 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. Flow Trader's has a Graham number of (15 x €2 EPS x 1,5 x €7 Book Value) = €17 

Note: Book value is less relevant for an information company like Flow Traders than a factory.

Dividend: €0.9/€19 = 5%  (Flow Trader's dividend varies. It pays out 50% of profit as a dividend.)

Conclusion: Flow Traders seems to be creating value and is a better buy near €19 than at €50, but is not a stock for the Defensive Investor. Results vary with volatility which was low in 2019, but could remain low in 2020. It seems to be a bit of a gamble? 

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