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QuestionsCategory: Investor PsychologyPrice to Cashflow Ratio
Duvell Boo asked 2 years ago

hi Victor,

  1. where to find the industry average for P/CF?
  2. what is the fair value of P/CF? in your webinar, you said >10x is good company, while <10x is bad/out of favour company? but i read some articles said the lower the better


3 Answers
Jieren Zheng answered 2 years ago

Usually going through brokerage/analyst reports would be easier to find.

The lower the valuation for a great company the better. Buying $1 of value for 10c is definitely better than $1 of value for 50c. But we have to be reasonable, some valuations could be only seen in the 2008 Great Financial Crisis (which even the recent plunge in March is not as huge), even crisis valuations are hard to find frankly.

Victor Chng replied 2 years ago

Thanks JR

Jieren Zheng replied 2 years ago

I thought I provide an easier way that is easier to obtain.

Valuation is ever always a subjective subject

Victor Chng replied 2 years ago

Ya it actually depend on individual. Then again, you just need to be roughly right instead of exactly right.

Duvell Boo answered 2 years ago

Hi Zheng,
Thanks for the feedback but you still don’t really answered my Q1 & Q2, especially on fair value of P/CF???

Jieren Zheng replied 2 years ago

Brokerage/analyst reports would provide industry averages.

Fair value is subjective for each company. The 10x multiple you cited is merely a gauge.

Victor Chng answered 2 years ago

Hi Duvell,
1.To find industry average, I will plot the P/CF chart of their competitors and calculate the average P/CF of all of them. Sum it up and divided by the number of players.
2.The fair value of P/CF is the company average P/CF. There is no absolute figure for this as each company behaviour differently.