Value Investing

The basic concept is straightforward: If you know the true value of something, you can save a lot of money when you buy it on sale. Whether you buy a new Mobile on sale, or at Full price, you’re getting the same Mobile with all the features

Stocks work in a similar manner, meaning the company’s stock price can change even when the company’s value or valuation has remained the same.

• Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
• Value investors actively ferret out stocks they think the stock market is underestimating.
• Value investors use financial analysis, don’t follow the herd, and are long-term investors of quality companies.

Characteristics of great value stock

• Well-established businesses with long histories of success
• Consistent profitability
• Stable revenue streams
• Dividend payments

You should research on the company by research and checking its financial metrics

• Reading the Financial Statements
• Finding out what it does
• Understanding the industry – is it cheap because it is in a declining industry?
• Identifying the potential challenges the company might be facing
• Keeping current with news about the company

Financial Metrics

• Price-to-Earnings Ratio
  Compare the P/E ratio with industry peer
• Price-to-Book Ratio
  Find a stock with a P/B ratio that is less than 1. This means that it is currently priced cheaper than its equity or book value.
• Price-to-Earnings Growth (PEG) ( P/E ratio / Earnings Per Share Growth)
  PEG looks more into future growth compared to P/E ratio which is based on historical figures.
• Net-Net Value ( Current Assets – Total Liabilities )
  If the current assets can cover all of the company’s liabilities, the net-net value will be positive and that will be an investment worth looking at
• Debt-to-Equity Ratio
  A company with a low debt-to-equity ratio is better for investment
• Price-to-Free Cash Flow
  Cash is the most liquid current asset the company can have.
  Price-to-FCF Ratio = Price / Free cash flow per share
  Lower numbers indicate that a company is under priced.

Value investing strategies take time to follow, but the time and effort you spend are worth it