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| Share Name | Share Symbol | Market | Stock Type |
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| Mediasurface | MSR | London | Ordinary Share |
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| 0.00 | 0.00% | 13.00 | 01:00:00 |
| Open Price | Low Price | High Price | Close Price | Previous Close |
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| 13.00 | 13.00 |
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Posted at 25/4/2008 08:45 by jimbill i would think that it would have to be towards the 20's as that was what a lot of investors were tempted in at, so to make them agree to sell...Michael Jackson bought loads at the 8-9p mark when the price dived so he must have thought that was rock bottom? |
Posted at 13/12/2007 14:59 by garth Presumably a distressed seller of that size presents a potential opportunity at an artificially low price? For the patient investor, that is. Historic eps is 1p. Any long term holders care to suggest: 1. Whether they really can exploit the Microsoft release to actually increase revenue? 2. What a realistic level of eps might be looking forward a year or two? G. |
Posted at 02/10/2007 11:02 by yump drewzYou're right there. I know of a few investors posting who have apparently been 'full up to the brim' with 5 stocks, out of which 3 have tanked, and yet they still seem to be investing. Either got a bottomless pit of money (in which case you wonder how they got it and kept it) or just fibs ! |
Posted at 02/10/2007 09:43 by yump Its the suddenness of the announcement and lack of any 'guidance' earlier that bothers me. The business is something else.I don't think you can conclude that Pepperio isn't a sustainable business on the basis of a year or so promotion and disappointing sales though. More likely that: (a) the SME area is very fragmented and that is an opportunity, but it might be a more difficult opportunity and gradual one than they thought. (b) they are too late into the market, because many SME's are already reasonably set up with their websites and although they could be significantly better and easier to use, those businesses just don't want the hassle of a redesign. (c) websites are still being built of course, so perhaps a longer reputation is needed among SME's (they all know Actinic for instance) or perhaps the pricing isn't right or.......? Without some more explanation its difficult to know. fwiw they appear to have acted quickly to cut back on Pepperio investment, to concentrate on what already works, although not quite clear how much of that was originally planned scaling down. They've still got the main business + the Immediacy business which is performing well as they say. Its the triple hit thats done the damage: initial (heavy?) investment in Pepperio, Low sales in Pepperio, and Morello contracts not booked in this year. As an investor hoping for growing profits its very disappointing. As a business, you could say its just business. |
Posted at 07/9/2007 09:17 by yump There seems to be a general hunt and interest in low p/e stocks at the moment, although whether that is a growth stock strategy or not is open to debate.They always have me in a puzzle because imo stocks on p/e's of 10 and under are probably recovery stocks, because there is something in their past which has given them that low p/e. Whether its debt levels, hiccups in growth, placings or just a mundane business. Always ask myself - if someone gave me a pot of money to start that business, would I bother ? - from the point of view of whether its an attractive business or not. If the answer is no or don't know, then certainly won't do it the other way around and part with my money to fund them. There is always the hope of a sudden gain with those stocks I think, if they surprise on the upside. However, the other problem is that if they've dropped off from a spike because of a hiccup, then there's a lot of previous investors to interrupt any smooth share price movement upwards. However, for true growth stocks I think its worth paying anything up to a p/e of 15ish on current year, as long as there's at least 25% growth forecast for the next year. If they've grown in the last few years and the share price chart reflects that, then you are still paying cheaply for the growth imo. Some might say a higher rating gives more chance of a fall, but one of the original Slater points about good growth companies is that everything fits together - they are good growth companies because they are good businesses, with good management, good planning, good investor information etc. etc. That's why there aren't many of them imo. Have high hopes for MSR - ticks all the boxes and no hype. |
Posted at 26/6/2007 22:06 by dibbs A very nice surprise today from MSR. Not much to add to the quality posts I've just read above.It will be interesting to see what sort of forecasts Peel Hunt come up with for the company, post aquisition. At todays price the company will be capitalised at around £25 million, no longer a tiddler, likely to be noticed by more investors as a result IMO. Dibbs |
Posted at 13/4/2007 17:09 by stegrego Not sure if this posted or not but its from the Jan Edition of AIM INSIGHT from Hargreaves Lansdown - (i think its now available to download for free)Back in the tech boom at the beginning of the decade, there was talk of a flotation for website content management software supplier Mediasurface. It was valued at hundreds of millions of pounds but ran into difficulties. However, new management joined in 2002 and Mediasurface showed a dramatic turnaround from loss to profit in its results released at the beginning of January. It has been a tough job moving Mediasurface into profit but now it is there, it is highly cash generative and we think there is still plenty of scope for further growth. Mediasurface lost £500,000 in the year to September 2005 but a 42% increase in revenues to £9.67m enabled it to produce a profit of £806,000 last year. The website content management market is estimated to be growing at 15% a year so Mediasurface is growing nearly three times faster than the market. Forecasts for this year indicate it could still grow twice as fast as the market. This transformation has been down to improving sales of the company's core software product Morello. Its newer managed services product, Pepperio, is yet to make a significant contribution but it could become an important revenue generator in the coming years. Morello is a software package that enables non-technical people to change and update a company's website, intranet or extranet. Morello generates three types of revenues which come from selling software licences, professional services related to the setting up or continued use of the software and recurring maintenance revenues. Morello has a wide range of large businesses and organisations as customers, including Prudential, Intercontinental Hotels, Ingersoll Rand, EMI, Britannia Building Society, Ofcom and the Home Office. Its main markets are the UK, Netherlands, US and Australia. The deal with community healthcare business Simplyhealth provides an example of how revenues are generated. Simplyhealth paid £130,000 for a software licence and a further £60,000 on professional services provided by Mediasurface. It is also paying an annual maintenance fee of £26,000. Simplyhealth bought Morello because it allows the marketing staff to manage their part of the website, and it will also reduce ongoing website maintenance costs because they will be handled internally rather than through outside consultants. Demand for Morello continues to grow and the group's growth will be given added impetus over the medium-term by Pepperio. Pepperio is a managed service equivalent of Morello aimed at small businesses and it is sold through design agencies. The small businesses pay for the design and building of a website and then pay a minimum of £100 a month. The designer and Mediasurface each receive half of this monthly payment. This will increase the proportion of Mediasurface's income that is recurring and at the end of September total annualised recurring income was £2.5m. Pepperio was launched last summer so it didn't have much effect on last year's financial results and probably won't make a large contribution this year either. Analysts are assuming that Pepperio will contribute up to 12% of turnover in 2007/08, which could prove conservative. There is also scope to grow geographically. Even though Mediasurface does have distribution in the US, there is still room to build up its coverage across the country. In the past Mediasurface's share price has been held back through selling by the company's original venture capital backers. This overhang has gone and the only significant pre-flotation investor still around is Mediasurface's chairman Michael Jackson's firm Elderstreet, which owns around onequarter of the company. Jackson himself owns 5.5%. Mediasurface has usable tax losses of £7m so it won't be paying any significant tax for at least three years even if trading is better than expected. Net cash reached £1.1m at the end of September and this could rise to £1.8m next September. Mediasurface floated in August 2004 at 12p a share. The shares haven't always traded above that level but since the end of 2005 they have risen by more than 50%. Even so the prospective multiple of 14 is not high given the prospects for growth - even allowing for the expected nil tax charge. This year's profit will be held back by the costs of increased marketing of Pepperio. The multiple could fall to less than 8 for the year to September 2008 as Pepperio starts to make a more substantial contribution. Consider as a buy. |
Posted at 05/3/2007 09:52 by bb4 Medical Publisher Gets Aid from MorelloThe Dutch arm of medical and health publisher Springer Publishing Company has chosen Morello web content management solution from Mediasurface for the management of the Internet sites of its Dutch publications. Internet portal Artsennet is the first project that will go live with web content management system Morello and will be followed by the main Springer website later in the year. Artsennet.nl is the internet site of the Royal Nederlandsche Society for the Promotion of the Geneeskunst (KNMG), an independent site which hosts medical information of and for doctors in the Netherlands. The KNMG have ambitious plans to make their medical internet-portal and web community the definitive site for the medical profession in the Netherlands. "With Morello, we will be less dependent on third party resource such as programmers since Morello allows our business users to manage their own web content. Morello will also help us improve our levels of service to our members. For example, by coupling data from the central office and registering the interest of our users, we will be able to deliver a much more personalized website solution whilst the single login allows visitors to gain secure access to confidential areas of the website. In addition, thanks to the way Morello stores and manages information and digital files such as picture, text and documents without enforcing a format we can reuse information across the different sites within the portal." comments Aletha Annema of KNMG. The project commenced on 11th January 2007 and Springer hope to have the new sites live in Summer 2007. See also Investors Investor News Keep up to date with investor related news, regulatory announcements and other share price sensitive information. Products Products Mediasurface has two distinct products Morello and Pepperio. Each embodies the company's vision of business crucial technology which engages the business user. Downloads RSS Feeds Explanation of how to use our RSS Feeds for news, events and investor news . View online demos Subscribe to newsletter Contact us Rate this page . |
Posted at 24/1/2007 22:31 by yump Buys and sells don't seem to have been categorised correctly for a while - guess the spread and share price movement messes up the computer.Think the share changing the way it has been behaving since Nov. will get more interest - there's investors lurking looking for early risers and early stage profit movements. Won't take much to move the price imo. |
Posted at 04/5/2005 13:33 by badabing Is this any use to anyone?How to Value a company The most common way to value a company is to use its earnings. Earnings, also called net income or net profit, is the money that is left over after a company pays all of its bills. To allow for apples-to-apples comparisons, most people who look at earnings measure them according to earnings per share (EPS). You arrive at the earnings per share by simply dividing the dollar amount of the earnings a company reports by the number of shares it currently has outstanding. Thus, if XYZ Corp. has one million shares outstanding and has earned one million dollars in the past 12 months, it has a trailing EPS of $1.00. (The reason it is called a trailing EPS is because it looks at the last four quarters reported -- the quarters that trail behind the most recent quarter reported. $1,000,000 -------------- = $1.00 in earnings per share (EPS) 1,000,000 shares The earnings per share alone means absolutely nothing, though. To look at a company's earnings relative to its price, most investors employ the price/earnings (P/E) ratio. The P/E ratio takes the stock price and divides it by the last four quarters' worth of earnings. For instance, if, in our example above, XYZ Corp. was currently trading at $15 a share, it would have a P/E of 15. $15 share price -------------------- $1.00 in trailing EPS Is the P/E the Holy Grail? There is a large population of individual investors who stop their entire analysis of a company after they figure out the trailing P/E ratio. With no regard to any other form of valuation, this group of unFoolish investors blindly plunge ahead armed with this one ratio, purposefully ignoring the vagaries of equity analysis. Popularized by Ben Graham (who used a number of other techniques as well as low P/E to isolate value), the P/E has been oversimplified by those who only look at this number. Such investors look for "low P/E" stocks. These are companies that have a very low price relative to their trailing earnings. Also called a "multiple", the P/E is most often used in comparison with the current rate of growth in earnings per share. The Foolish assumption is that for a growth company, in a fairly valued situation the price/earnings ratio is about equal to the rate of EPS growth. In our example of XYZ Corp., for instance, we find out that XYZ Corp. grew its earnings per share at a 13% over the past year, suggesting that at a P/E of 15 the company is pretty fairly valued. Fools believe that P/E only makes sense for growth companies relative to the earnings growth. If a company has lost money in the past year or has suffered a decrease in earnings per share over the past twelve months, the P/E becomes less useful than other valuation methods we will talk about later in this series. In the end, P/E has to be viewed in the context of growth and cannot be simply isolated without taking on some significant potential for error. Are Low P/E Stocks Really a Bargain? With the advent of computerized screening of stock databases, low P/E stocks that have been mispriced have become more and more rare. When Ben Graham formulated many of his principles for investing, one had to search manually through pages of stock tables in order to ferret out companies that had extremely low P/Es. Today, all you have to do is punch a few buttons on an online database and you have a list as long as your arm. This screening has added efficiency to the market. When you see a low P/E stock these days, more often than not it deserves to have a low P/E because of its questionable future prospects. As intelligent investors value companies based on future prospects and not past performance, stocks with low P/Es often have dark clouds looming in the months ahead. This is not to say that you cannot still find some great low P/E stocks that for some reason the market has simple overlooked -- you still can and it happens all the time. Rather, you need to confirm the value in these companies by applying some other valuation techniques. The PEG and YPEG The most common Foolish applications of the P/E are the P/E and growth ratio (PEG) and the year-ahead P/E and growth ratio (YPEG). Rather than reinvent the wheel, as there is a wonderful series of articles already written on these very subjects in Fooldom, I will simply direct your attention to them and talk about them very briefly. The PEG simply takes the annualized rate of growth out to the furthest estimate and compares this with the current stock price. Since it is future growth that makes a company valuable to both an acquirer and a shareholder seeking either dividends or free cash flow to fund stock buybacks, this makes some degree of intuitive sense. Only looking at the trailing P/E is kind of like driving while looking out the rearview mirror. If a company is expected to grow at 10% a year over the next two years and has a P/E of 10, it will have a PEG of 1.0. P/E of 10 -------------------- 10% EPS growth A PEG of 1.0 suggests that a company is fairly valued. If the company in the above example only had a P/E of five but was expected to grow at 10% a year, it would have a PEG of 0.5 -- implying that it is selling for one half (50%) of its fair value. If the company had a P/E of 20 and expected growth of 10% a year, it would have a PEG of 2.0, worth double what it should be according to the assumption that the P/E should equal the EPS rate of growth. While the PEG is most often used for growth companies, the YPEG is best suited for valuing larger, more-established ones. The YPEG uses the same assumptions as the PEG but looks at different numbers. As most earnings estimate services provide estimated 5-year growth rates, these are simply taken as an indication of the fair multiple for a company's stock going forward. Thus, if the current P/E is 10 but analysts expect the company to grow at 20% over the next five years, the YPEG is equal to 0.5 and the stock looks cheap according to this metric. As always, one must view the PEG and YPEG in the context of other measures of value and not consider them as magic money machines. Multiples Although the PEG and YPEG are helpful, they both operate on the assumption that the P/E should equal the EPS rate of growth. Unfortunately, in the real world, this is not always the case. Thus, many simply look at estimated earnings and estimate what fair multiple someone might pay for the stock. For example, if XYZ Corp. has historically traded at about 10 times earnings and is currently down to 7 times earnings because it missed estimates one quarter, it would be reasonable to buy the stock with the expectation that it will return to its historic 10 times multiple if the missed quarter was only a short-term anomaly. When you project fair multiples for a company based on forward earnings estimates, you start to make a heck of a lot of assumptions about what is going to happen in the future. Although one can do enough research to make the risk of being wrong as marginal as possible, it will always still exist. Should one of your assumptions turn out to be incorrect, the stock will probably not go where you expect it to go. That said, most of the other investors and companies out there are using this same approach, making their own assumptions as well, so, in the worst-case scenario, at least you won't be alone. A modification to the multiple approach is to determine the relationship between the company's P/E and the average P/E of the S&P 500. If XYZ Corp. has historically traded at 150% of the S&P 500 and the S&P is currently at 10, many investors believe that XYZ Corp. should eventually hit a fair P/E of 15, assuming that nothing changes. This historical relationship requires some sophisticated databases and spreadsheets to figure out and is not widely used by individual investors, although many professional money managers often use this approach. Revenues-Based Valuations Valuation: The Price/Sales Ratio Every time a company sells a customer something, it is generating revenues. Revenues are the sales generated by a company for peddling goods or services. Whether or not a company has made money in the last year, there are always revenues. Even companies that may be temporarily losing money, have earnings depressed due to short-term circumstances (like product development or higher taxes), or are relatively new in a high-growth industry are often valued off of their revenues and not their earnings. Revenue-based valuations are achieved using the price/sales ratio, often simply abbreviated PSR. The price/sales ratio takes the current market capitalization of a company and divides it by the last 12 months trailing revenues. The market capitalization is the current market value of a company, arrived at by multiplying the current share price times the shares outstanding. This is the current price at which the market is valuing the company. For instance, if our example company XYZ Corp. has ten million shares outstanding, priced at $10 a share, then the market capitalization is $100 million. Some investors are even more conservative and add the current long-term debt of the company to the total current market value of its stock to get the market capitalization. The logic here is that if you were to acquire the company, you would acquire its debt as well, effectively paying that much more. This avoids comparing PSRs between two companies where one has taken out enormous debt that it has used to boast sales and one that has lower sales but has not added any nasty debt either. Market Capitalization = (Shares Outstanding * Current Share Price) + Current Long-term Debt The next step in calculating the PSR is to add up the revenues from the last four quarters and divide this number into the market capitalization. Say XYZ Corp. had $200 million in sales over the last four quarters and currently has no long-term debt. The PSR would be: (10,000,000 shares * $10/share) + $0 debt PSR = -------------------- The PSR is a measurement that companies often consider when making an acquisition. If you have ever heard of a deal being done based on a certain "multiple of sales," you have seen the PSR in use. As this is a perfectly legitimate way for a company to value an acquisition, many simply expropriate it for the stock market and use it to value a company as an ongoing concern. Uses of the PSR As with the PEG and the YPEG, the lower the PSR, the better. Ken Fisher, who is most famous for using the PSR to value stocks, looks for companies with PSRs below 1.0 in order to find value stocks that the market might currently be overlooking. This is the most common application of the PSR and is actually a pretty good indicator of value, according to the work that James O'Shaughnessey has done with S&P's CompuStat database. The PSR is also a valuable tool to use when a company has not made money in the last year. Unless the corporation is going out of business, the PSR can tell you whether or not the concern's sales are being valued at a discount to its peers. If XYZ Corp. lost money in the past year, but has a PSR of 0.50 when many companies in the same industry have PSRs of 2.0 or higher, you can assume that, if it can turn itself around and start making money again, it will have a substantial upside as it increases that PSR to be more in line with its peers. There are some years during recessions, for example, when none of the auto companies make money. Does this mean they are all worthless and there is no way to compare them? Nope, not at all. You just need to use the PSR instead of the P/E to measure how much you are paying for a dollar of sales instead of a dollar of earnings. Another common use of the PSR is to compare companies in the same line of business with each other, using the PSR in conjunction with the P/E in order to confirm value. If a company has a low P/E but a high PSR, it can warn an investor that there are potentially some one-time gains in the last four quarters that are pumping up earnings per share. Finally, new companies in hot industries are often priced based on multiples of revenues and not multiples of earnings. Cash Flow-Based Valuations Cash-Flow (EBITDA) & Non-Cash Charges Despite the fact that most individual investors are completely ignorant of cash flow, it is probably the most common measurement for valuing public and private companies used by investment bankers. Cash flow is literally the cash that flows through a company during the course of a quarter or the year after taking out all fixed expenses. Cash flow is normally defined as earnings before interest, taxes, depreciation and amortization (EBITDA). (Cash flow in this context should not be confused with Free Cash Flow, which is an important metric to Rule Maker investors.) Why look at earnings before interest, taxes, depreciation and amortization? Interest income and expense, as well as taxes, are all tossed aside because cash flow is designed to focus on the operating business and not secondary costs or profits. Taxes especially depend on the vagaries of the laws in a given year and actually can cause dramatic fluctuations in earnings power. For instance, CYBEROPTICS enjoyed a 15% tax rate in 1996, but in 1997 that rate will more than double. This situation overstates CyberOptics' current earnings and understates its forward earnings, masking the company's real operating situation. Thus, a canny analyst would use the growth rate of earnings before interest and taxes (EBIT) instead of net income in order to evaluate the company's growth. EBIT is also adjusted for any one-time charges or benefits. As for depreciation and amortization, these are called non-cash charges, as the company is not actually spending any money on them. Rather, depreciation is an accounting convention for tax purposes that allows companies to get a break on capital expenditures as plant and equipment ages and becomes less useful. Amortization normally comes in when a company acquires another company at a premium to its shareholder's equity -- a number that it account for on its balance sheet as goodwill and is forced to amortize over a set period of time, according to generally accepted accounting principles (GAAP). When looking at a company's operating cash flow, it makes sense to toss aside accounting conventions that might mask cash strength. When and How to Use Cash Flow Cash flow is most commonly used to value industries that involve tremendous up-front capital expenditures and companies that have large amortization burdens. Cable TV companies like TIME-WARNER and TELECOMMUNICATIONS INC. have reported negative earnings for years due to the huge capital expense of building their cable networks, even though their cash flow has actually grown. This is because huge depreciation and amortization charges have masked their ability to generate cash. Sophisticated buyers of these properties use cash flow as one way of pricing an acquisition, thus it makes sense for investors to use it as well. The most common valuation application of EBITDA, the discounted cash flow, is a rather complicated spreadsheet exercise that defies simple explanation. Economic Value Added (EVA) is another sophisticated modification of cash flow that looks at the cost of capital and the incremental return above that cost as a way of separating businesses that truly generate cash from ones that just eat it up. The most straightforward way for an individual investor to use cash flow is to understand how cash flow multiples work. In a private or public market acquisition, the price-to-cash flow multiple is normally in the 6.0 to 7.0 range. When this multiple reaches the 8.0 to 9.0 range, the acquisition is normally considered to be expensive. Some counsel selling companies when their cash flow multiple extends beyond 10.0. In a leveraged buyout (LBO), the buyer normally tries not to pay more than 5.0 times cash flow because so much of the acquisition is funded by debt. A LBO also looks to pay back all the cash used for the buyout within six years, have an EBITDA of 2.0 or more times the interest payments, and have total debt of only 4.5 to 5.0 times the EBITDA. Investors interested in going to the next level with EBITDA and looking at discounted cash flow or EVA are encouraged to check out the bookstore or the library. Since companies making acquisitions use these methods, it makes sense for investors to familiarize themselves with the logic behind them as this might enable a Foolish investor to spot a bargain before someone else. Equity-Based Valuations What is Equity? Equity is a fancy way of referring to what is actually there. Whether it's tangible things like cash, current assets, working capital and shareholder's equity, or intangible qualities like management or brand name, equity is everything that a company has if it were to suddenly stop selling products and stop making money tomorrow. Traditionally, investors who rely on buying companies with a substantial amount of equity to back up their value are a paranoid lot who are looking to be able to collect something in liquidation. However, as the TV-dominated mass-consumer age has helped intangibles like brand names create powerful moats around a core business, contemporary investors have begun to push the boundaries of equity by emphasizing qualities that have no tangible or concrete value, but are absolutely vital to the company as an ongoing concern. The Balance Sheet: Cash & Working Capital Like to buy a dollar of assets for a dollar in market value? Ben Graham did. He developed one of the premier screens for ferreting out companies with more cash on hand than their current market value. First, Graham would look at a company's cash and equivalents and short-term investments. Dividing this number by the number of shares outstanding gives a quick measure that tells you how much of the current share price consists of just the cash that the company has on hand. Buying a company with a lot of cash can yield a lot of benefits -- cash can fund product development and strategic acquisitions and can pay high-caliber executives. Even a company that might seem to have limited future prospects can offer tremendous promise if it has enough cash on hand. Another measure of value is a company's current working capital relative to its market capitalization. Working capital is what is left after you subtract a company's current liabilities from its current assets. Working capital represents the funds that a company has ready access to for use in conducting its everyday business. If you buy a company for close to its working capital, you have essentially bought a dollar of assets for a dollar of stock price -- not a bad deal, either. Just as cash funds all sorts of good things, so does working capital. Shareholder's Equity & Book Value Shareholder's equity is an accounting convention that includes a company's liquid assets like cash, hard assets like real estate, as well as retained earnings. This is an overall measure of how much liquidation value a company has if all of its assets were sold off -- whether those assets are office buildings, desks, old T-shirts in inventory or replacement vacuum tubes for ENIAC systems. Shareholder equity helps you value a company when you use it to figure out book value. Book value is literally the value of a company that can be found on the accounting ledger. To calculate book value per share, take a company's shareholder's equity and divide it by the current number of shares outstanding. If you then take the stock's current price and divide by the current book value, you have the price-to-book ratio. Book value is a relatively straightforward concept. The closer to book value you can buy something at, the better it is. Book value is actually somewhat skeptically viewed in this day and age, since most companies have latitude in valuing their inventory, as well as inflation or deflation of real estate depending on what tax consequences the company is trying to avoid. However, with financial companies like banks, consumer loan concerns, brokerages and credit card companies, the book value is extremely relevant. For instance, in the banking industry, takeovers are often priced based on book value, with banks or savings & loans being taken over at multiples of between 1.7 to 2.0 times book value. Another use of shareholder's equity is to determine return on equity, or ROE. Return on equity is a measure of how much in earnings a company generates in four quarters compared to its shareholder's equity. It is measured as a percentage. For instance, if XYZ Corp. made a million dollars in the past year and has a shareholder's equity of ten million, then the ROE is 10%. Some use ROE as a screen to find companies that can generate large profits with little in the way of capital investment. COCA-COLA ,for instance, does not require constant spending to upgrade equipment -- the syrup-making process does not regularly move ahead by technological leaps and bounds. In fact, high ROE companies are so attractive to some investors that they will take the ROE and average it with the expected earnings growth in order to figure out a fair multiple. This is why a pharmaceutical company like MERCK can grow at 10% or so every year but consistently trade at 20 times earnings or more. Intangibles Brand is the most intangible element to a company, but quite possibly the one most important to a company's ability as an ongoing concern. If every single MCDONALD'S restaurant were to suddenly disappear tomorrow, the company could simply go out and get a few loans and be built back up into a world power within a few months. What is it about McDonald's that would allow it to do this? It is McDonald's presence in our collective minds -- the fact that nine out of ten people forced to name a fast food restaurant would name McDonald's without hesitating. The company has a well-known brand and this adds tremendous economic value despite the fact that it cannot be quantified. Some investors are preoccupied by brands, particularly brands emerging in industries that have traditionally been without them. The genius of INTEL and MICROSOFT is that they have built their company names into brands that give them an incredible edge over their competition. A brand is also transferable to other products -- the reason Microsoft can contemplate becoming a power in online banking, for instance, is because it already has incredible brand equity in applications and operating systems. It is as simple as Reese's Peanut Butter cups transferring their brand onto Reese's Pieces, creating a new product that requires minimum advertising to build up. The real trick with brands, though, is that it takes at least competent management to unlock the value. If a brand is forced to suffer through incompetence, such as AMERICAN EXPRESS in the early 1990s or Coca-Cola in the early 1980s, then many can become skeptical about the value of the brand, leading them to doubt whether or not the brand value remains intact. The major buying opportunities for brands ironically comes when people stop believing in them for a few moments, forgetting that brands normally survive even the most difficult of short-term traumas. Intangibles can also sometimes mean that a company's shares can trade at a premium to its growth rate. Thus a company with fat profit margins, a dominant market share, consistent estimate-beating performance or a debt-free balance sheet can trade at a slightly higher multiple than its growth rate would otherwise suggest. Although intangibles are difficult to quantify, it does not mean that they do not have a tremendous power over a company's share price. The only problem with a company that has a lot of intangible assets is that one danger sign can make the premium completely disappear. The Piecemeal Company Finally, a company can sometimes be worth more divided up rather than all in one piece. This can happen because there is a hidden asset that most people are not aware of, like land purchased in the 1980s that has been kept on the books at cost despite dramatic appreciation of the land around it, or simply because a diversified company does not produce any synergies. SEARSDEAN WITTER DISCOVER and ALLSTATE are all worth a heck of a lot more broken apart as separate companies than they ever were when they were all together. Keeping an eye out for a company that can be broken into parts worth more than the whole makes sense, especially in this day and age when so many 1970s conglomerates are crumbling into their component parts Yield-Based Valuations A dividend yield is the percentage of a company's stock price that it pays out as dividends over the course of a year. For example, if a company pays $1.00 in dividends per quarter and it is trading at $100, it has a dividend yield of 4%. Four quarters of $1 is $4, and this divided by $100 is 4%. Yield has a curious effect on a company. Many income-oriented investors start to pour into a company's stock when the yield hits a magical level. The historical performance of the Dow Dividend Approach supports the general conclusion buttressed by Jim O'Shaugnessey's work that shows that a portfolio made up of large capitalization, above-average yielding stocks outperforms the market over time. Some, like Geraldine Weiss, actually invest in stocks based on what yield they should have. Weiss measures the average historical yield and counsels investing in a company's shares when the yield hits the edge of the undervalued band. For instance, if a company has historically yielded 2.5% and is currently paying $4 in dividends, the stock should trade in the $160 range. Anyone interested in learning more about Weiss's yield-oriented valuation approach should check out Dividends Don't Lie. The simplest way to take advantage of stocks that are undervalued based on their yield is to use the Dow Dividen |
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