Monday, April 05, 2021

Euronext stock price versus Graham Defensive value on normal and logarithmic scales

Here are 2 charts showing the same thing. The Benjamin Graham Defensive "value" of Euronext shares in red and the stock market price in blue. The top is linear the bottom graph is logarithmic. Peter Lynch made logarithmic graphs of price compared to 15x Earnings per Share. If you think about it, that is most logical. 

Benjamin Graham Defensive analysis:

SECTOR: [PASS] Euronext  runs stock exchanges. It went public in 2013-14. It is planning to buy the Borsa Italiana Group.

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Euronext's sales of €884 million, based on 2020 sales, passes this test.

CURRENT RATIO:  [PASS]  The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Euronext's current ratio €943m/€310m of 3,0 sort of passes 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 do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for Euronext has increased to €1 486 million, while the net current assets are  €633 million. Euronext fails this test.

LONG-TERM EPS GROWTH: [FAIL]  [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. Euronext's earnings are growing, but the long-term results are difficult to determine because of its corporate history and recent IPO, but earnings have been increasing significantly.

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. Euronext's E/P of 5,8% (using last year's adjustend 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. Euronext has a Graham number of (15 x €4,3 EPS x 1,5 x €15,6 Book Value) = roughly €38

Dividend: €2,25?/€87 = 2,5% and has been increasing.

The conclusion at the end of 2019 and beginning of 2021: Seems to be a great company, expanding through acquisitions. Stock is not extremely expensive or cheap.

Disclosure: I own Euronext shares through

No comments: