I calculated the following for Tencent.
Based on instrinsic (Average PE ratio 5 years x Average EPS for 5 years) =40.64 * 6.55 = HKD 266
Including Net Debt per Share of HKD 34.59 and current price of HKD 510,
Advanced Margin of Safety = (266-510+34.59)/266 =-5.2% currently
My question is ” Can I use Price to Cashflow” to calculate the instrinsic value?
Instrinsic value = Average P/Cashflow Ratio 5 years * Current Cash/Share = 27.24*15.47 = HKD 420.
With Net debt per share of HKD 34.59, Advanced margin of safety = (420 + 34.59 – 510)/420 = -1.3 %
Can I have your advice on if this is correct?
Sorry if this is a bit messy
1.For Tencent, their profit are consistently growing so you don;t need to use the average EPS, just use the latest EPS will do.
2.Regarding calculating your margin of safety,
IV = 266
Net Debt = 34.59
So your new IV include debt should be = 231.41
Share price = 510 so margin of safety is (231.41-510)/231.41 = -120.4%
3.For Tencent case, you can just use to Average PE multiply by latest EPS to get Intrinsic Value (IV). Do note that, we are not going to use the net cash/debt formula in valuation as this way may be too conservative or aggressive in valuation method depending on the cash/debt position.
4.The cash flow to net income ratio for Tencent is mostly below 2x, hence my take is PE valuation is sufficient. Once you use the latest EPS figure, your PE and PCFO valuation is roughly the same figure.
My suggestion for Tencent is to use PE ratio as a valuation instead of PCFO. You can also use the TTM operating cash flow per share for valuation.
1.Fast growing is those company that have net profit growth of more than 20% while moderate should be below 20%.
2.As what I mentioned earlier, if the company having moderate growth then I will use 10 years PE. It is not depend on whether the company is local or overseas. On the other hand, you can also plot out the 5 years and 10 years PE charts.
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