119 lines
4.5 KiB
Org Mode
119 lines
4.5 KiB
Org Mode
#+title: Section 11 | Lesson 59 - read financials and find data patterns
|
||
#+HTML_HEAD: <link rel="stylesheet" type="text/css" href="../_share/media/css/org-media-sass/categories/business.css" />
|
||
#+OPTIONS: H:6
|
||
|
||
* Links
|
||
- [[./../mba-main.org][TOC | Business]]
|
||
- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4315028#overview][S11:L59 course video]]
|
||
|
||
* Notes
|
||
|
||
- MS changed from a growth stock to a value stock
|
||
- growth investors loved it
|
||
- bill gates left and the company became a bureacracy
|
||
- dont ever invest in a tech company where the founder is gone
|
||
- they are buying back shares
|
||
|
||
** forecast revenue
|
||
- forecast each year after the next
|
||
- not looking at each
|
||
- add assumptions 'why' something will happen
|
||
- e.g. 2016 Windows 10 is free for the first year, but the second year cost
|
||
- xbox sales slowing
|
||
- good because factories are less profitable
|
||
- the new director was good with clouds and clouds are good for $
|
||
|
||
*** how to build the model
|
||
- read the 10k
|
||
- go to investors website and read relations stuff
|
||
- last 15 minutes of conference wall street guys ask questions
|
||
- call investor relations directly and ask them
|
||
- make sure you do your due dilligence
|
||
- the relations guys will bs you if you don't know your stuff
|
||
- you have the same access as analysts do
|
||
- reg fd: regulation federal disclosure
|
||
- government mandatated
|
||
- everyone has the same access
|
||
- publish on website
|
||
- publish on webcasts
|
||
|
||
** valuation
|
||
- create a forecast
|
||
- got earnings per share
|
||
- listed assumptions
|
||
|
||
*** how to make a target price
|
||
- 3 methodologies
|
||
- do all of them and take an average
|
||
- keep it simple
|
||
|
||
**** methodology 1: price vs earnings per share
|
||
|
||
***** NOTE: we are calculating STOCK PRICE based on EARNINGS PER SHARE multiplied by YOY GROWTH RATE
|
||
|
||
***** Understanding "Valuation" - Price/Earnings (P/E) Ratio Methodology
|
||
|
||
This section of your financial course explains how to estimate the target price of a stock five years into the future using the Price-to-Earnings (P/E) ratio.
|
||
|
||
***** 1. The Price-to-Earnings (P/E) Ratio
|
||
- The **P/E ratio** is a way to value a stock based on its **earnings per share (EPS)**.
|
||
- It is defined as:
|
||
|
||
#+BEGIN_SRC
|
||
P/E = Stock Price / Earnings Per Share (EPS)
|
||
#+END_SRC
|
||
|
||
- Stocks typically trade at a P/E ratio that is close to their **earnings growth rate**:
|
||
- If a company's **earnings grow at 20% per year**, it will likely have a **P/E ratio of ~20x**.
|
||
- If earnings **grow at 8% per year**, the stock might trade at **8x EPS**.
|
||
|
||
***** 2. Forecasting the Target Price (5-Year Estimate)
|
||
- The **target price** in **5 years** is based on the company’s **forecasted EPS** multiplied by a reasonable P/E ratio.
|
||
- In this example:
|
||
- **MSFT’s EPS is growing at 12% per year**.
|
||
- The stock should trade at a **P/E of 12x** in 5 years.
|
||
|
||
***** 3. Using the Provided Table (EPS Forecasts)
|
||
|
||
| Metric | FY19e | FY20e |
|
||
|---------------------------------|--------|--------|
|
||
| Diluted Earnings Per Share (EPS) | $3.93 | $4.90 |
|
||
| Year-over-Year EPS Growth | 12% | - |
|
||
|
||
- **FY19e EPS = $3.93**
|
||
- **FY20e EPS = $4.90**
|
||
- **EPS is growing at 12% per year**.
|
||
|
||
***** 4. Calculating the Target Price
|
||
- Since the company is growing at **12% per year**, we assume it will trade at **12x earnings** in 5 years.
|
||
- Using the **FY20e EPS of $4.90**:
|
||
|
||
#+BEGIN_SRC
|
||
Target Price = 12 × 4.90 = 59
|
||
#+END_SRC
|
||
|
||
***** 5. Comparing Today’s Price to the Target Price
|
||
- **Assume MSFT is trading at $47 today** (when the course was written).
|
||
- **Expected appreciation in 5 years**:
|
||
|
||
#+BEGIN_SRC
|
||
(59 - 47) / 47 = 25% increase
|
||
#+END_SRC
|
||
|
||
- Since **MSFT is a mature company**, a **25% increase in 5 years seems reasonable**.
|
||
|
||
***** Final Takeaways
|
||
✔ The P/E ratio method values stocks based on **earnings growth**.
|
||
✔ Stocks usually trade at a **P/E close to their earnings growth rate**.
|
||
✔ Target price is found by **multiplying the estimated EPS by the assumed P/E ratio**.
|
||
✔ **MSFT, trading at $47 today, could reach $59 in 5 years with 12% EPS growth.**
|
||
|
||
🚀 Now you understand how the course uses P/E ratios for stock valuation!
|
||
|
||
|
||
|
||
**** methodology 2: price vs revenue/sales
|
||
- assume the avg software company trades at 5x revenue in 5 years
|
||
- MSFT, being a big company that grows slowly, grows at 70% of avg
|
||
- so instead of trading 5x in 5 years, it will trade at 3x in 5 years
|
||
- therefore the [[file:finance_terms.org::*Market Capitalization (Market Cap)][market cap]] should be $504bn in 5 years
|