Industry: Property
Stock Pick: Robinson Land Corporation
I have never really tried applying my knowledge about financial ratios or accounting skills in trading stocks. In the past, i relied on news, stock tips on forums and gut feel. So this is the first time I am doing this and by tomorrow, I'll post my first buy order for RLC. Just want to write it down here so I'll remember and determine after six months, if making an analysis is worth it.
First, let me explain the table above and each of the column,
STOCK - This column pertain to the ticker symbol of each of the public corporation engaged in the property business listed in Philippine Stock Exchange.
Price - This column is the closing price of the stock as of August 1, 2011.
COL Rating - This column pertain to my stock broker recommendation for the stock as of August 1, 2011.
Target Price - This column is the target price for the stock. The stock may or may not reach this price.
Upside - This is the potential return of the stock. The difference between the target price and stock price over the closing price.
Sales Growth - This column pertain to sales growth forecast for 2011. This is important because we want to get in the company that is getting the big chunk of the industry's revenues. Sales is the starting figure and it is important that a company continue to increase its sales.
Net Profit Growth - The company not only need to earn revenues but must also exhibit improving margins. It is not favorable to us investors if the company is increasing its sales and with it goes the expenses. A good company should be able to control costs.
Net Profit Margin - This ratio shows what percentage of sales is eventually reported as a profit after deducting the company's expenses. The industry's average is 29%. This means that for every peso of sales, the company has to spend 71% for expenses. We want to choose higher profit margin as much as possible.
Cash Flow Operating - This shows how much cash the operations of the company generates. It is important to look into this number to gauge the liquidity of the company. This is not a hard and fast rule but negative cash flows from operations means that the company might need to obtain cash from creditors or investors to continue its operation. The number above will differ due to the size of the company's operation. For the meantime, just assume that any positive number is good.
P/E Ratio - Price Earnings ratio means how much an investor is paying for the earnings of a stock. This number shows us how expensive a stock is relative to its competitors.
Dividend Yield - I would not explain this much but this ratio just shows how much is the yield of a company's dividend relative to its current price. The higher the number, the better.
Now, assuming we consider all the criteria as equal and we give 1 point each time a company statistic is well above the industry's average. We'll get the following points
Based on the analysis, we want to get RLC for exhibiting above average numbers among the industry.
Of course, you can also decide on a single factor alone. Using the potential rewards, SMPH will be the stock choice given its 29% potential upside.
Using P/E ratio, we'll see that VLL is the cheapest among the industry players.
Using Profit Margin, FLI ranks highest with its 40% margin.
I'm actually half-decided. Without assigning points, I'll go for FLI or MEG. FLI because it is cheap, has the fastest sales growth and high profit margin.
MEG because it is the cheapest and has 25% upside potential.
Right now, i own VLL, MEG and ALI. I don't own FLI and RLC and based on the ranking above, i should get these two. I only have P14k free cash in my bpi account. Let's see. I'll try to buy RLC and FLI.
Update: Bought 700 RLC and 6,000 of FLI today, August 3, 2011. Let's see what happens after six months.
