Valuation

Q & AValuation
Elaine Ang asked 12 months ago

I am doing my stock analysis homework on Elsoft, this company looks good to me passed all the 5 criteria of a good company, the performance looks promising, but it has negative growth rate  of -2.75% it was because of the Dividend Payout Ratio is 121% but the other 2 ways of calculation based on Net Profit giving a 35% of course the eventual valuation shown that it is overvalued, so my questions are:

  1. should i continue to submit this so that Peter & yourself can share your views 
  2. it is normal to have dividend payout ratio or more than 100% does this mean the company is returning more earning back they don’t what to do with the money not a good management?
  3. it is normal to have the 3 numbers for growth rate computation to have such big difference -2.75% versus 35%? I can tell that they have potential to grow in this case which should i use?

 

1 Answers
Peter Lim Staff answered 12 months ago
  1. Don’t see why not. There are reasons why in school, students are required to submit homeworks to teachers. 🙂
  2. Dividend payout of more than 100% of earnings is not sustainable. Thus have to see Dividend payouts over 5 years or longer.
  3. Growth is a huge part of the calculation, and for companies that have high fluctuating earnings, the growth rate would would fluctuate wildly. The above is based on historical calculation, which is just a guide. But your understanding of the company and its competitive business advantage would give u a better use of which growth rate to used.