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Price to Cashflow Ratio

Questions › Category: Investor Psychology › Price to Cashflow Ratio
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Duvell Boo asked 1 year 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

 
Thanks,
Duvell

3 Answers
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Jieren Zheng answered 1 year 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 1 year ago

Thanks JR

Jieren Zheng replied 1 year ago

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

Valuation is ever always a subjective subject

Victor Chng replied 1 year ago

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

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Duvell Boo answered 1 year 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 1 year ago

Brokerage/analyst reports would provide industry averages.

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

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Victor Chng answered 1 year 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.