On January 30, 2020 I wrote: "My colleague Hendrik Oude Nijhuis https://www.beterinbeleggen.nl/over-ons/hendrik-oude-nijhuis.html likes to say: "Think of a stock's Price and Intrinsic Value in terms of taking an excitable dog for a walk on a long leash. Sometimes the dog walks in front of you, sometimes behind you, but eventually, you both arrive at your destination at the same time."
Signify is a textbook example. After 2020 the share price dipped to EUR 15 in the Coronapanic and then soared to EUR 53 and has now gone down by half and is under the Graham Value.
Another way of thinking is "Mr. Market". Benjamin Graham explained. Mr. Market's a well-meaning doofus who shows up at your door every weekday offering to buy or sell a stock. Every day, Mr. Market's price is different. Though Mr. Market is persistent you don't have to worry about offending him. Whether you accept his offer or not, Mr. Market is sure to be back tomorrow with a new price.
It worked for Graham and for a few of his disciples, like Warren Buffett.
According to Graham, Mr. Market really doesn't know what stocks are worth. The smart investor can profit from this. One day Mr. Market will offer to buy your stock for more than it's worth. You should sell! Another day, Mr. Market will offer stock for less than it's worth. You should buy!
It worked for Graham and for a few of his disciples, like Warren Buffett.
Benjamin Graham Defensive Analysis
SECTOR: [PASS] Signify Lighting is neither a technology nor a 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. Signify Lighting's sales of €6 879 million, based on 2021 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. Signify Lighting's current ratio €3 720m/€2 824 of 1.3 fails 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 (and provisions) for Philips Lighting is €2 835 million, while the net current assets are €896 million. Signify Lighting 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. Signify Lighting as an independent company has an insufficient history for this criterion. Sales and profits are increasing, a good sign.
Earnings Yield: PASS] The inverse of the Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be sufficiently high, which this methodology states is greater than 6,5%. Stocks with high Earning Yields are more defensive by nature. Signify Lighting's Earnings Yield of 12% (using the average Earnings of the past 2 years and this year's estimate) passes this test.
GRAHAM NUMBER: [PASS] The Graham number value must be greater than the market price. Signify Lighting has a Graham Number of Square Root ( 1,5 x €18 Book Value x 15 x €2 Earnings per Share) = € 29 and is similar to the price.
Dividend: EUR 1,45 / 27,45 = 5%
Conclusion: Signify seems to be on sale today with a 27% discount to the Graham Value.
SECTOR: [PASS] Signify Lighting is neither a technology nor a 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. Signify Lighting's sales of €6 879 million, based on 2021 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. Signify Lighting's current ratio €3 720m/€2 824 of 1.3 fails 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 (and provisions) for Philips Lighting is €2 835 million, while the net current assets are €896 million. Signify Lighting 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. Signify Lighting as an independent company has an insufficient history for this criterion. Sales and profits are increasing, a good sign.
Earnings Yield: PASS] The inverse of the Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be sufficiently high, which this methodology states is greater than 6,5%. Stocks with high Earning Yields are more defensive by nature. Signify Lighting's Earnings Yield of 12% (using the average Earnings of the past 2 years and this year's estimate) passes this test.
GRAHAM NUMBER: [PASS] The Graham number value must be greater than the market price. Signify Lighting has a Graham Number of Square Root ( 1,5 x €18 Book Value x 15 x €2 Earnings per Share) = € 29 and is similar to the price.
Dividend: EUR 1,45 / 27,45 = 5%
Conclusion: Signify seems to be on sale today with a 27% discount to the Graham Value.
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