How to value a loss making company header

How to Value a Loss Making Company

There are plenty of companies listed on global stock exchanges that don’t make any money for their investors. Yet despite this, when there is excitement around the company, there is never a shortage of people still willing to invest. Snap Inc. (NYSE:SNAP) – owner of Snapchat – is a high profile social media company in the United States whose losses have grown year on year since their founding.

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share price falls

A company’s share price falls >20%, should you buy or sell?

 

Throughout the life of a listed company, it will undoubtedly encounter share price swings due to the unpredictable nature of industry and market sentiment. In fact, there are a whole host of reasons why a company may experience a share price fall and when it does, this can be a great time to consider it for your portfolio. But a share price fall does not mean you should automatically buy, and it certainly doesn’t mean you should automatically sell. The reason for the share price fall will ultimately determine what action to take.

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Why high intangibles can be detrimental to a company

Why High Intangibles Can Be Detrimental to Any Listed Business

 

Acquisition stories seem to be a dime a dozen these days. The idea is that a company in a fragmented industry buys smaller players or competitors to increase their own size and scale. There are a few reasons why a company may do this. The most common reasons are: to expand their market presence, to increase their capabilities, or acquire strategic assets that would take years of capital expenditure to build.

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stock chart ASX stricter IPOs

The folly of using share price graphs in investment decisions

The share price graph is one of the most used tools in company analysis. Whether consciously or sub-consciously it undoubtedly always plays a part. Ask yourself if you’ve ever thought or heard someone use these phrases:

“The share price has rallied hard this month so we’ve missed out” or,

“The share price has doubled this year so it must be a good business”, or

“The share price has seen steady decline all year so I wouldn’t touch it with a 10 foot pole”.

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Importance of Valuation

Why Company Valuation is a Critical Step in your Investment Process

It’s easy to find good listed businesses; the ASX is full of them. The challenge is buying them at the right time. And I’m not talking about trying to time the market – that is a fool’s game. But buying these excellent companies when their valuation is favourable is the key to good investing.

There are two main methods we use at Farnam to value a business: by building a discounted cash flow (DCF) and using a price to earnings (PE) multiple. A detailed explanation of each is beyond the scope of this article, but briefly, a DCF values the business based on future expected earnings discounted to the net present value, and the PE takes the current multiple the stock trades on and compares it to a group of industry peers.

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Dividend Yield

Australia’s Unyielding Pursuit of Dividends

In today’s ageing environment where super funds are collectively an enormous participant in the stock market, the hunt for yield can be unrelenting. Dividend stocks are highly sought after because they offer a consistent revenue stream of cash that is generally higher than both bonds and term deposits.

Compounding this desire is the availability of franking credits, whereby investors will receive a refund of the tax that has already been paid on the earnings related to the dividend. This is a unique tax law found only in Australia and a few other nations, but it increases the attractiveness of dividends as this tax refund effectively increases the yield of the dividend.

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searching for investment ideas

Where to find investment ideas for your DIY portfolio

 

As a beginning investor, it may seem daunting as you start to build a portfolio. You have some money that you want to invest but you don’t want to put all your eggs in one basket. So you decide to find a handful of companies and diversify.

Good companies are everywhere. Some you will see in the world daily – like Dominoes or the Banks. But many good companies can go unnoticed by those who are not looking. Equally, just because a company is large and well-known, does not automatically qualify them for an investment.

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