Answer for Negative retention rate

Hi Bryan,   1. For this, there’s a number of ways to go about it:
a) Do a 2 step calculation, which basically estimate the company’s growth for a number of years (say 3 or 5), followed by assuming the company grows at a lower perpetual sustainable growth rate.
b) Assume the company’s growth follows the average business model’s growth rate. For instance, Digi’s growth depends on the penetration rate of phones in the country, as well as the growth of the population. 
c) Assume the company have no growth.
d) use ROCE instead of ROE (which basically considers debts as equity, and interest expense is added back to net profit) to calculate growth.
e) Use the company’s growth in Net Profit (lower of the past 1,3 or 5 years, subject to current year’s net profit is “normal” and not abnormally high due to one-off income or revenue that are non recurring in nature).

2) Yes, you’re right. ROE is calculated by Net Profit / Shareholder’s equity. However, when the Shareholder’s equity is close to 0 (which is possible when the company fund its operations mainly from debts), the ROE becomes extremely big (or even negative). A similar company is BJTOTO.  

3. Sure. Please email me your stock analysis and we can go thru it together during the webinar for the benefit of other members as well. My email is peterlim80 [at] gmail dot com   As you can see from my answer above, it’s case to case basis for such situation. It all depends on the business model, my understanding of that business model (for estimating growth), the ability of the management to deliver such growth. Either way, i still put a max price of P/E of 20 for virtually all my purchase. 

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Peter Lim

Investor (Not Speculator).