A very quick and cool way to determine if a stock is reasonably valued or not.  

Price  = (Earning for next year / Required return ) + Present Value of Growth Opportunities

Simply solve for Present value of Growth Opportunities(PVGO)

While I would advice the average investor not to get too technical with the formula, I will give you my method of obtaining the variables.

Price is simply the current market price of the security being valued, the idea is market is somewhat efficient and accurate (feel free to insert your joke here, I do!)

(Earning for next year / Required return ) is the Value of a static no-growth firm; PVGO represents the market price of the hopes and the dreams and the aspirations for the firm to add value additionally to the assets and/or earning power that are already in place.

Earning for next year can be looked up from yahoo finance analyst estimate (again, feel free to insert your joke here!)

Required return is simply derived from the Capital Asset Pricing Model(CAPM)(Just bear with me for a minute).  For the market return, I use the Long term S&P 500 return of 9.6% (Hang on, not just yet), and for  risk free rate, I use 10 year Treasury, and the Beta from Yahoo Finance.  Plug the numbers into the variables of the formula to calculate the required return:  Required return = Risk free rate+ Beta *( Market Return-Risk free rate)

The drawback of this formula is the fact that it’s a rule of thumb.  Like any number crunching, I believe in GIGO, Garbage In Garbage Out.  Here are some of the possible situations of how the inputs can be flawed.

Earning estimate for next year could be skewed.  Inputs for CAPM are flawed, for example, what risk-free rate to choose, what is the market in market return, how many years should I regress the Beta, and should the Beta be levered to reflect the proper debt ratio?  What about cash hoard on balance sheet beyond the necessary reinvestment for growth and working capital and cap ex?

Those are all legitimate questions, but I don’t believe this is the time and place to get bogged down.  The idea is to determine quickly off the top of your head if the price of a stock is reasonably valued, and worth looking into.

For example:  Apple Inc. (股票代號: AAPL)

Next year estimated earning= $48.13 ( from Yahoo Finance)

Beta of AAPL=0.93 (from Yahoo Finance)

Market Return(3 years annualized S&P 500 Total Return)=10.87% (from Standard & Poor’s)

Risk Free Rate=1.91% (from Yahoo Finance, 10 years treasury)

Market Price of Apple Inc.= $527

PVGO of Apple= $527- ($48.13 / {0.0191+[0.93*(0.1087-0.0191)]})=$57.11

The future growth of Apple Inc. is worth about a mere 11% of its current stock price.

Oh Wait!  What about the more than $110 billion worth of cash, which translate to about an additional $117 per share and increasing, on its balance sheet?

The NO-Growth Apple based on this quick calculation is worth $587 per share and increasing by the minute.

People, please do a comparison to your beloved company, try adding an element of rationality into your investment process.

For comparison purpose, Google’s PVGO is $737.97-$358.14=$379.83;  approximately 51.5% of its current price.

The idea is that if a company’s growth does not pan out, the crash and burn will be relatively more substantial than that of Apple’s.

You should play around with high growth company such as Facebook and check for yourself how much did you pay for the hopes and dreams of the projected growth.

This is where you should start your investigation on whether the company’s future growth prospect as reflected by the market price is warranted, according to your own opinion based on facts and sound logic.

Good Investing.



** 自前一篇FFIV到現在也有一段時間了, 當時的多頭獲利平倉的交易算是較短線一點. 當時也提過約在$117區間會是下一個不錯的獲利目標, 這當然還得等找到個好的點再進. 之後的大回調一直還找不到好的型態來確認時機. 不過過了幾個月, 目前由高階技術圖中的OX圖來分析, 這仍然是一個較中長期一點的獲利目標. 近期可以多多關注, 注意突破, 不過極有可能還會先有個consolidation pattern, 會使其稍慢一些.

北海道白色戀人工廠. 真的不錯吃! December, 2012


據說是白色戀人大老闆喜歡搜集很多好玩的東西, 所以建了個堡來展示收藏品. Cool!


美國國會兩黨在2012年的最後幾個小時達成了暫時的共識, 讓財政懸崖的問題有所緩解, 雖然新的法案中, 2013年大家仍然需要加稅, 但是對於年收入在40萬以下的”非有錢人”仍然享有一定的稅務優惠. 美國股票也很給面子, 在2012年的最後一個交易日和2013年一開市的兩天, 全線大漲, S&P也大漲超過60點. 雖然我沒有參與太多, 但是這也算是聯邦政府送給大家的一份新年禮物吧!

財政懸崖的激情過後, 也該開使冷靜一點的面對股市. SPX的圖中我們可以看出來, SPX又回到了之前”三頂”的高點, 第四度要來挑戰這個價位, 這個主要阻力的價位, 將會是影響短期走勢關鍵. 同樣的, 代表小型企業為主的RUT也站上了870附近的關鍵阻力. 大家近期觀察時可以多注意市場對於試圖突破新高的反應.


AMZN在9/14達到新高後, 有了大約40點大幅度的回調, 一度跌到220左右之後反彈上漲, 12/18再次達到高點, 但是仍然無法突破, 今天到了大約245的價位.這樣形成了一個形成中的雙頂走勢. 短期來說265是很大的阻力, 第一個比較小支撐是在50天均線的240左右, 主要的支撐會在雙頂頸部的220, 如果220的支撐被突破, 則很有可能一舉填補4/27的Gap.

另一方面, 2012就快要結束了, 雖然兩黨之間對財政懸崖有一些互相退一步的方案, 但是仍然沒有達成最後的共識, 在這最後的幾天, 大家還是先開心過新年, 耐心的先靜觀其變吧.


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