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25-07-2017, 11:43 AM
#11881
Do a decent DCF or profit analysis
Originally Posted by hardt
Implied 0% growth rate from 2017 onwards = (35(8.5+0)*4.4/3.5)/100 = $3.74
Implied 1% growth rate from 2017 onwards = (35(8.5+2)*4.4/3.5)/100 = $4.62
Aren't their earnings supposed to decline over the next 3-5 years?
Originally Posted by mikeybycrikey
Any chance that someone could annotate this for me? Currently it doesn't mean much to me.
35 -- EPS best guess for FY2017
(8.5+X) -- the much abused Graham formula
4.4/3.5 -- airline discount factor, accidentally inverted
Should read
0% growth = $0.35*(8.5+0)*3.5/4.4 = $2.37
1% growth = $0.35*(8.5+2)*3.5/4.4 = $2.92
Best Wishes
Paper Tiger
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25-07-2017, 12:02 PM
#11882
Originally Posted by Paper Tiger
35 -- EPS best guess for FY2017
(8.5+X) -- the much abused Graham formula
4.4/3.5 -- airline discount factor, accidentally inverted
Should read
0% growth = $0.35*(8.5+0)*3.5/4.4 = $2.37
1% growth = $0.35*(8.5+2)*3.5/4.4 = $2.92
Best Wishes
Paper Tiger
Interesting ....esp where you put your smilie thing
Benjamin didn't like airline stocks they say
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
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25-07-2017, 12:06 PM
#11883
Originally Posted by BlackPeter
Maybe you should add some examples with negative growth. Remember - tourism and air travel are very cyclical - and currently at the peak.
Airliners are cyclical for sure as margins expand and contract in their usual cycles, But with each cycle AIR moves through they will hit lows and highs that are both higher than the previous cycles.
Negative growth rate over the next 4 years will most likely be followed by positive growth rate thereafter, the valuation takes a look at a 7-10 year average.
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25-07-2017, 12:09 PM
#11884
Originally Posted by Paper Tiger
35 -- EPS best guess for FY2017
(8.5+X) -- the much abused Graham formula
4.4/3.5 -- airline discount factor, accidentally inverted
Should read
0% growth = $0.35*(8.5+0)*3.5/4.4 = $2.37
1% growth = $0.35*(8.5+2)*3.5/4.4 = $2.92
Best Wishes
Paper Tiger
Honestly never knew he inverted yields with airliners, are you pulling my leg?
Last edited by hardt; 25-07-2017 at 12:14 PM.
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25-07-2017, 12:14 PM
#11885
Many a true word spoken in jest
Originally Posted by hardt
Honestly never knew he inverted yields with airliners, is that for real.
No I made that up - I think.
But kindly do tell us what is this 4.4/3.5 thing?
Best Wishes
Paper Tiger
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25-07-2017, 12:24 PM
#11886
Originally Posted by Paper Tiger
No I made that up - I think.
But kindly do tell us what is this 4.4/3.5 thing?
Best Wishes
Paper Tiger
Graham revised the formula in 74 when he realised the greatest contributing factor behind stock values over the decade had been interest rates
At the time of around 1962 when Graham was publicizing his works, the risk free interest rate (AAA 10-20y) was 4.4%.
To adjust this to the present we divide by todays AAA corporate bond rate which is around 3.5%
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25-07-2017, 12:41 PM
#11887
Seeing as IATA are predicting medium term growth in passenger travel at 5% and AIR are putting on about that level of new capacity if one uses 5 for the g part of Ben Graham's formula you get a really interesting answer !...where's some facts like the latest monthly operating stat's.
Last edited by Beagle; 25-07-2017 at 12:45 PM.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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25-07-2017, 12:59 PM
#11888
Originally Posted by Beagle
Seeing as IATA are predicting medium term growth in passenger travel at 5% and AIR are putting on about that level of new capacity if one uses 5 for the g part of Ben Graham's formula you get a really interesting answer !...where's some facts like the latest monthly operating stat's.
But that would put AIR on a PE of 18.5 or in the other formula hardyakker uses at would be 23 plus ...at the top of the cycle as well
Even you know that's plain stupid ..... also highlights that old school methods don't work these days (nice way of saying that Ben's formula has some inherent flaws in it for these times)
But its fun eh ....saying that intrinsic valie of AIR is over $7 - isn't the market stupid giving it a 50% discount to Bens valuation
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
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25-07-2017, 01:08 PM
#11889
Originally Posted by winner69
But that would put AIR on a PE of 18.5 or in the other formula hardyakker uses at would be 23 plus ...at the top of the cycle as well
Even you know that's plain stupid ..... also highlights that old school methods don't work these days (nice way of saying that Ben's formula has some inherent flaws in it for these times)
But its fun eh ....saying that intrinsic valie of AIR is over $7 - isn't the market stupid giving it a 50% discount to Bens valuation
LOL yes its fun mate but even using my tight fisted valuation approach of only paying 1g that gives 37 x (8.5 + 5) = $4.99 but the sceptics will say that AIR can't possibly grow at 5% per annum for the foreseeable future across the cycles...but you never know maybe they can ?, here's a thought... maybe all those brokers DCF models using a 2% terminal growth rate are just a wild guess too
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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25-07-2017, 01:29 PM
#11890
Originally Posted by winner69
But that would put AIR on a PE of 18.5 or in the other formula hardyakker uses at would be 23 plus ...at the top of the cycle as well
Even you know that's plain stupid ..... also highlights that old school methods don't work these days (nice way of saying that Ben's formula has some inherent flaws in it for these times)
But its fun eh ....saying that intrinsic valie of AIR is over $7 - isn't the market stupid giving it a 50% discount to Bens valuation
Using the best case scenario to value a stock will never do you any good.
if this stock had 5% bottom line growth coming its way it would be $5+ but it doesn't - the market is aware of this.
The formula is only as good as the number you put in it.
Last edited by hardt; 25-07-2017 at 01:36 PM.
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