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QuestionsCategory: Valuation QuadrantChange of Valuation Approach?
Khuen asked 7 years ago

Hi Victor, Rusmin,
 
In your book (Value Investing in Growth Companies), under the Chapter 7 – Valuation. You applied the approach of – Intrinsic Value as Margin of Safety, PE Ratio and PEG Ratio. And you have written a few pages merely on Intrinsic value calculation. 
However, in this InvestmentQuadrant course, under the Valuation Quadrant. You Removed Intrinsic Value, but you Added Price to Book, Price to Cash Flow, Price to Sales and Dividend Yield.  As such, clearly, you find that Intrinsic Value is not helpful in your valuation process.
May I know the reason and lesson behind your change of Valuation Approach?
 

1 Answers
Victor Chng answered 7 years ago

Hi Khuen,
 
A point of note: While intrinsic value is ordinarily calculated using discounted cash flow (or earnings), it is simply a concept of what a stock is truly worth and you can define intrinsic value by other valuation methods as well – it is up to you. For example, I could use the P/E ratio and place a particular stock’s intrinsic value at a P/E of 30. If that stock is trading at a P/E of 15, to me the stock is undervalued with a 50% margin safety.
 
With that said, we will include a lesson on the discounted cash flow model in an update very soon! :)
 
As for why we included other “new” methods of valuation: Value Investing in Growth Companies was published two years ago and since then we have gone beyond just using DCF as a one-size-fits-all method of valuation. Different types of companies require different valuation methods and sometimes DCF is simply inappropriate

Khuen replied 7 years ago

Thanks Victor! I got your point here about the Margin of Safety using individual defined Intrinsic Value. Hope you can include more lessons on Intrinsic Value soon.

Augustine Lim replied 7 years ago

Yes. Please add more articles on intrinsic value. I still blur on how to calculate to get intrinsic value