My latest article for Seeking Alpha forecasts Nike, Inc.’s earnings and determines its intrinsic value.
- Nike is a strong brand showing consistent revenue growth and excellent financial health.
- Nike’s revenue and earnings outlook for the next 5 years shows a continued ability to generate superior growth and dominate the industry.
- An estimated intrinsic value for shares of Nike based on best- and worst-case scenarios for the company, industry, and economy.
In analyzing stock valuations, people often use the price-to-earnings ratio as a shortcut. The problem is, it is just that a shortcut. It is the stock price divided by the trailing 12 months’ earnings per share. It is a simple measurement of past performance in a complex system that cannot be reduced to one number. P/E is a screening tool at best. It does not tell us enough about the most important factors of stock ownership: future earnings and cash flows.
Nike (NKE) has a P/E ratio of around 65, so investors are currently paying 65 times the last 12 months’ earnings per share to buy the stock. If the last 12 months’ earnings per share were to continue indefinitely, it would take 65 years to make your money back. So, initially, Nike looks extremely expensive. Thankfully, the appropriate price of a stock is based on a lot more than current EPS. Let’s conduct a more detailed assessment of Nike’s current earnings and project its future earnings to get a more accurate assessment of Nike’s intrinsic value. Continue reading…
In my latest article for Seeking Alpha, I look at how two companies handled industry disruption between 2000-2010 and analyze whether GameStop (GME) meets the profile of a survivor. This was a fun article to research, as Blockbuster was a comically mismanaged company, and one of its competitors, Family Video, remains a model for resilience to both disruption and recession.
David Abrams sums up Security Analysis the best in his introduction to Part VII of the 6th edition, where he calls it “the value investors’ equivalent to Deuteronomy” . SA is an extremely thorough explanation of how to evaluate stocks and bonds, primarily focusing on a company’s income statement and balance sheet. It is not an ideal starting point for young investors, but it is essential reading for any serious investor.
Graham and Dodd discuss the philosophy of value investing eloquently. They provide detailed analysis of dozens of companies’ finance statements to support their arguments about how investors should analyze securities. It is an excellent reality check for anyone who thinks he knows a thing or two about investing.
The examples given by Graham and Dodd are a bit dated (1930s), but most of the principles are still relevant today. The organization of the book is a bit awkward, but I don’t presume that I could organize such a massive quantity and variety of material any better.
It took me a long time to get through this, and I will probably explore many parts of it again over the next few years. It is a valuable addition to any business library and a resource that you can use for a lifetime of investing.
An app that let’s you quickly and easily trade stocks with no transaction fees? It sounds too good to be true. There has to be a catch, right?
This was my reaction when I heard about Robinhood, the app you can download for free and use to start trading stocks with no transaction fees. At the time, most of my retirement savings was in a 403(b) and a state pension. These accounts have limited options, mostly made up of index funds. I am not crazy about index fund investing for several reasons, which I will elaborate on at another time. I had finally opened a Roth IRA with an online broker to invest in individual stocks, but I was frustrated with the fee situation. I investigated Robinhood as an alternative, and here is what happened. Continue reading “Robinhood to the Rescue”
Have you been to the Gaking Finance resources page yet? It has sections for articles, books, links, and videos. I have been adding new content almost every day. For example, I have added some fantastic investing resources to the articles page this week:
- 3 Country ETFs to Consider
- Beware of Concentration Risk in Country ETFs
- Busting the Frontier-Market Myths
- Chart: Where Is Global Growth Happening?
- Creating Alpha With Smart Beta in the US: Focus on Quality
- Emerging Markets Are Not All Created Equal
- Owner Earnings: Warren Buffett’s Favorite Formula
This library will keep growing, so keep checking back for more.
Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett the World’s Most Famous Investor
There are plenty of books about Warren Buffett available at any bookstore or library. What makes this one unique is that it is not written from the perspective of Warren Buffett’s cult following. After her divorce with Warren Buffett’s son, Mary Buffett capitalized on a rare opportunity to publish insider information about one of the richest people in the world and his investment strategies.
Rather than quote Warren Buffett’s shareholder letters to death like most authors, Mary sticks to the details of Warren’s investments, how he made each choice and how it worked out. She provides a lot of quantitative data that is useful for reverse-engineering Warren Buffett’s portfolio.
Information from this book definitely helped me refine a few aspects of my investing philosophy and my screening process. Mary is concise and unemotional, making this a quick and productive read.
The New Buffettology
This sequel to Buffettology updates Mary Buffett’s analysis of Warren Buffett’s investing strategies from the first book. It is a fine addition to the library of materials available about Warren Buffett, adding new investment decisions from his history that I had not previously read about. It also brings readers of the 1997 Buffettology up to speed on developments getting into the 21st century, when the bubble of the 1990s burst, hurting many portfolios, but creating new opportunities for patient value investors.