Post by fastwalker on Oct 4, 2004 0:34:54 GMT -5
;D FYI...Informational...
What’s a stock worth? Who doesn’t ponder that question from time to time?
I described several Web sites that calculate the intrinsic value, or "fair value" of a stock in an August 1999 column. (Original August 1999 Column).
I used Airborne Freight to compare the results of the fair value calculators. Airborne’s shares were changing hands for about $25 when I wrote the column. Most of the calculators came up with fair values in the $27 to $40 per share range, except for Quicken’s intrinsic value calculator. Quicken thought Airborne shares were worth $525 (not a typo). By October 11, 2000, Airborne shares were going for less than $9.
The reason for the substantial difference is clear, in hindsight. Most of the calculators I cited in the column rely primarily on analysts’ earnings forecasts, along with interest rates, to calculate fair value. Airborne was expected to earn $2.00 per share in 1999 and more in 2000, and the fair value calculations reflected those expectations. Airborne disappointed the market, earning only $1.79 in 1999, and analysts expect Airborne to earn much less, around $0.80 per share, in 2000.
ValuEngine.com
ValuEngine.com employs a fresh new strategy to calculate fair value, and even better, for estimating a series of target prices for a stock extending out three years.
ValuEngine.com was founded by Zhiwu Chen, Ph.D., a finance professor at Yale. Chen has done considerable research on the topic of stock valuation. His research forms the basis for ValuEngine.com’s valuation and forecasting formulas.
ValuEngine.com combines 14 different factors to calculate fair value and to forecast target prices. Chen’s formulas use earnings forecasts and interest rates like the calculators examined last year, but Chen also analyzes the stock’s trading history, its historical earnings growth, the stability of analysts’ earnings forecasts for the company, previous trading characteristics, and more.
ValuEngine.com displays Chen’s calculated fair value, Smart Ratings, and Stock Forecasts for just about any stock.
Smart Ratings Not
The Smart Ratings show Chen’s take on a stock’s attractiveness to each of seven different types of investors: Day Traders, Momentum Investors, Market Leader Investors, Growth-at-Reasonable-Prices, Balanced, Classic-Value, and Conservative Investors. For instance, the highest rating, "Very Attractive," means Chen thinks those investors would be attracted to the stock, not that Chen recommends the stock to them. The Smart Ratings are misleading, as you’ll see when we look at an example, and I suggest ignoring them.
Target Prices Are Smart
The Stock Forecasts are the most valuable information on the site. They display Chen’s target price forecasts for the stock, one, three and six months, and one, two, and three years into the future. The forecasts also show Chan’s estimate of your "Chance of a Double" (doubling your money), "Chance of Gains" (making money), and "Chance of Trouble" (loss) over each of the target price timeframes.
Airborne Freight Revisited
Once again, I used Airborne Freight to check out the calculations. Follow along with me by entering Airborne’s ticker symbol (ABF) in the box on the left-side of ValuEngine.com’s home page (http://valuengine.com) and selecting "Stock Overview" before clicking Go.
ValueEngine.com displays a Valuation Snapshot at the top, and the Smart Ratings, and "Valuation & Rankings" information below the snapshot.
The Valuation Snapshot includes the last trade price, Chen’s calculated fair value, and a forecast target price one-year out. I ignored ABF’s $13.06 fair value once I noticed the $9.54 one-year target price.
Given that the target price was only a few cents higher than the current price, I expected Chen’s Smart Ratings to advise all investors to skip Airborne Freight, but that wasn’t the case. Chen deemed Airborne unattractive for day traders and momentum investors, neutral for market leader and balanced investors, but very attractive, attractive, and less attractive to classic-value, conservative, and growth-at-reasonable-price investors, respectively. Again, that’s because the Smart Ratings reflect Chen’s view on the types of stocks these investors would pick, not his recommendations to them.
The Valuation & Ranking section displays the raw data used in calculating the fair value and target prices. You can see the definition of each term by placing your cursor over its name.
Forecast Prices Are The Bottom Line
Click on "Try Stock Forecast" to see the most important information, Chen’s forecasts for Airborne. Here’s where you’ll find his target prices going three years into the future. Chen forecasts Airborne will hit $8.18 in two years, and $8.83 three years out. Not exactly a ringing endorsement!
The "Odds Assessments" displayed below the target price for each timeframe shows your odds of doubling your money, and of winning or losing by holding the stock for the designated time. Chen put Airborne’s shareholders chances of seeing the stock double at 2.7 percent in one-year, 7.8 percent in two years, and 14.0 percent three years out.
He calculates that after 12 months, your 53.7 percent chance of losing money on Airborne surpasses your 46.3 percent chance of winning. If you believe Chen’s calculations, it’s hard to see Airborne’s appeal to any type of investor.
On a more positive note, Chen’s forecasts showed network equipment maker Cisco Systems shares moving up 28 percent in one year, and 62 percent in two years. Cisco shareholders’ odds of winning two years out handily beat their odds of losing, 82 percent to 18 percent.
Microsoft scored the best of the companies I checked. Chen’s forecasts show Microsoft’s shares gaining 93 percent in three years. Your 90.7 percent odds of winning far exceed your 9.3 percent chance of losing during that time.
Chen has good credentials, and his approach is based on sound principals. But it will take time to determine its validity. We’ll track his results and report back in a few months. Access to Chen’s forecasts on individual stocks is free. Use of the site’s screening tools, portfolio toolbox and other services require a subscription.
published 10/8/00
more....
What’s a stock worth? Who doesn’t ponder that question from time to time?
I described several Web sites that calculate the intrinsic value, or "fair value" of a stock in an August 1999 column. (Original August 1999 Column).
I used Airborne Freight to compare the results of the fair value calculators. Airborne’s shares were changing hands for about $25 when I wrote the column. Most of the calculators came up with fair values in the $27 to $40 per share range, except for Quicken’s intrinsic value calculator. Quicken thought Airborne shares were worth $525 (not a typo). By October 11, 2000, Airborne shares were going for less than $9.
The reason for the substantial difference is clear, in hindsight. Most of the calculators I cited in the column rely primarily on analysts’ earnings forecasts, along with interest rates, to calculate fair value. Airborne was expected to earn $2.00 per share in 1999 and more in 2000, and the fair value calculations reflected those expectations. Airborne disappointed the market, earning only $1.79 in 1999, and analysts expect Airborne to earn much less, around $0.80 per share, in 2000.
ValuEngine.com
ValuEngine.com employs a fresh new strategy to calculate fair value, and even better, for estimating a series of target prices for a stock extending out three years.
ValuEngine.com was founded by Zhiwu Chen, Ph.D., a finance professor at Yale. Chen has done considerable research on the topic of stock valuation. His research forms the basis for ValuEngine.com’s valuation and forecasting formulas.
ValuEngine.com combines 14 different factors to calculate fair value and to forecast target prices. Chen’s formulas use earnings forecasts and interest rates like the calculators examined last year, but Chen also analyzes the stock’s trading history, its historical earnings growth, the stability of analysts’ earnings forecasts for the company, previous trading characteristics, and more.
ValuEngine.com displays Chen’s calculated fair value, Smart Ratings, and Stock Forecasts for just about any stock.
Smart Ratings Not
The Smart Ratings show Chen’s take on a stock’s attractiveness to each of seven different types of investors: Day Traders, Momentum Investors, Market Leader Investors, Growth-at-Reasonable-Prices, Balanced, Classic-Value, and Conservative Investors. For instance, the highest rating, "Very Attractive," means Chen thinks those investors would be attracted to the stock, not that Chen recommends the stock to them. The Smart Ratings are misleading, as you’ll see when we look at an example, and I suggest ignoring them.
Target Prices Are Smart
The Stock Forecasts are the most valuable information on the site. They display Chen’s target price forecasts for the stock, one, three and six months, and one, two, and three years into the future. The forecasts also show Chan’s estimate of your "Chance of a Double" (doubling your money), "Chance of Gains" (making money), and "Chance of Trouble" (loss) over each of the target price timeframes.
Airborne Freight Revisited
Once again, I used Airborne Freight to check out the calculations. Follow along with me by entering Airborne’s ticker symbol (ABF) in the box on the left-side of ValuEngine.com’s home page (http://valuengine.com) and selecting "Stock Overview" before clicking Go.
ValueEngine.com displays a Valuation Snapshot at the top, and the Smart Ratings, and "Valuation & Rankings" information below the snapshot.
The Valuation Snapshot includes the last trade price, Chen’s calculated fair value, and a forecast target price one-year out. I ignored ABF’s $13.06 fair value once I noticed the $9.54 one-year target price.
Given that the target price was only a few cents higher than the current price, I expected Chen’s Smart Ratings to advise all investors to skip Airborne Freight, but that wasn’t the case. Chen deemed Airborne unattractive for day traders and momentum investors, neutral for market leader and balanced investors, but very attractive, attractive, and less attractive to classic-value, conservative, and growth-at-reasonable-price investors, respectively. Again, that’s because the Smart Ratings reflect Chen’s view on the types of stocks these investors would pick, not his recommendations to them.
The Valuation & Ranking section displays the raw data used in calculating the fair value and target prices. You can see the definition of each term by placing your cursor over its name.
Forecast Prices Are The Bottom Line
Click on "Try Stock Forecast" to see the most important information, Chen’s forecasts for Airborne. Here’s where you’ll find his target prices going three years into the future. Chen forecasts Airborne will hit $8.18 in two years, and $8.83 three years out. Not exactly a ringing endorsement!
The "Odds Assessments" displayed below the target price for each timeframe shows your odds of doubling your money, and of winning or losing by holding the stock for the designated time. Chen put Airborne’s shareholders chances of seeing the stock double at 2.7 percent in one-year, 7.8 percent in two years, and 14.0 percent three years out.
He calculates that after 12 months, your 53.7 percent chance of losing money on Airborne surpasses your 46.3 percent chance of winning. If you believe Chen’s calculations, it’s hard to see Airborne’s appeal to any type of investor.
On a more positive note, Chen’s forecasts showed network equipment maker Cisco Systems shares moving up 28 percent in one year, and 62 percent in two years. Cisco shareholders’ odds of winning two years out handily beat their odds of losing, 82 percent to 18 percent.
Microsoft scored the best of the companies I checked. Chen’s forecasts show Microsoft’s shares gaining 93 percent in three years. Your 90.7 percent odds of winning far exceed your 9.3 percent chance of losing during that time.
Chen has good credentials, and his approach is based on sound principals. But it will take time to determine its validity. We’ll track his results and report back in a few months. Access to Chen’s forecasts on individual stocks is free. Use of the site’s screening tools, portfolio toolbox and other services require a subscription.
published 10/8/00
more....