Company intrinsic value valuation

September 23, 2020

Q & A › Company intrinsic value valuation
0 Vote Up Vote Down
HO YONG SHING asked 3 years ago

Hi Peter, 
I’m looking at a company which is running at net debt. But it revenue, ROE are showing double digit growth. Because of its high ROE and dividend retention rate when using formula (k-g) it will give negative value because the growth is higher than my desire return.
Do you have other idea how to value this kind of company? 

2 Answers
0 Vote Up Vote Down
KCLau Staff answered 3 years ago

When the growth is very high, we put a limit to it. Usually g = 10% maximum.
The reason is that the formula is assuming the growth is perpetuate (forever). We know that logically no company can keep growing at a high rate forever because the population is finite.

So as long as your k > g, you shouldn’t get a negative number.

HO YONG SHING replied 3 years ago

Thanks KC for your help answer my question

0 Vote Up Vote Down
Chin Kian Wee answered 3 years ago

what would it indicate if growth is greater than the required return k > g ?
On the other hand, I noticed that US stocks do not have “dividend payout ratio” , thus I couldn’t calculate  g =roe*(1-dividend payout ratio). Do you have any stock analysis video for US stocks for learning?