While share prices move every day, valuations move much more slowly. But move they do. Especially in the next few weeks as companies report their annual results. Many analysts however and a great deal of the commentary will focus on earnings growth, revenue growth and dividend growth but all that matters is whether return on equity is being maintained and the company is increasing in intrinsic value. Once you have established that and found a company that ticks every box, then all that matters is buying at a big discount to intrinsic value.
I have been saying for some time that the vast majority of A1 and A2 companies appear to be expensive.
In response to several requests to be more specific on the subject, I thought I would list a few companies that I believe are currently above their intrinsic values.
The following companies are those that come immediately to mind and that I believe are both very high in quality AND very high in price: Servecorp, ERA, Seek, Navitas, ASG Group, Domino’s Pizza, Fleetwood, Carsales, David Jones, Cochlear and Reckon.
Obviously, I will be interested in the full year results for these companies and indeed every company, which may change the intrinsic values dramatically. Moreover, I am NOT predicting that the shares of these companies will fall in price. As much as I would like to be able to share that information with you, I just do not have it. I am not able forecast share prices and as I have repeatedly noted, estimating the value of a company is not the same as predicting their share price.
For now however, those listed above look sufficiently expensive for me to conduct research on other companies. Be sure to seek and take personal professional advice BEFORE undertaking any activity in shares or derivatives or any securities.
Posted by Roger Montgomery
31 July 2010
