Tuesday, February 18, 2020

ING stock price lower than Benjamin Graham Defensive Value

Dutch compliance costs seem to have hit ING lees than I would have expected. 


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 €17 773 million, based on 2017 sales, pass 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. EPS for ING have increased 45% in the last 10 years the company passes 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 12% 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 €1,2 EPS x 1,5 x €12,6 Book Value) = €19

Dividend: EUR 0,69 / EUR 10,45 = 7%

Conclusion: Now at a stock price of EUR 10,5 seems like a good time to buy ING.

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