- The financial figures in terms of revenue and sales translate into final business performance of companies.
- The margin of safety should be ensured to avoid shocks in market uncertainty.
- Key focus on long-term value investing with the aid of several financial figures helps in providing crisp picture of a Company.
Australian stock market scenario in the past few weeks relished growing optimistic sentiments as the business operations picked up the steam and retail sales indicated returning consumer confidence. The phased reopening in May transpired higher consumer activities with Australian retail turnover witnessing the most substantial seasonally adjusted month-on-month rise in 38 years.
However, a spike in cases recently has poured cold water on growing conjectures concerning the bullish ride and the economy once against appears to be in a conundrum. Many stocks may be in for another choppy ride as the threat for the second wave of infection looms over the market scenario. Notably, Australia saw a rise in infection numbers with Victoria leading the states, confirming 75 new cases on 29 June 2020 as hotspot testing continues in Melbourne.
Amidst the sudden twist in the Australian landscape, the knowledge that its economy is poised better than other countries seem to offer some sort of solace and consolation to people ferreting around for hopes. Despite this, many companies in the trying circumstances may fall prey to the austere macroeconomic scenario.
Watching numerous businesses sinking in the current state of affairs may feel like reliving plot of ‘The Hunger Games’ in the business aspect. Here in the stock market, although several players would survive the market fall, what relates it to the dystopian storyline is that many would also fall victim to the crisis.
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Market meltdown, seeming to deepen the creases of worries at the same time, is also viewed by many investors to bring another round of bargaining season. The old philosophy “buy low, sell high” has again picked up momentum among investors hunting for bargain stocks.
Notably, bargain investing involves purchasing shares that trade below their intrinsic value as denoted by the fundamental analysis. Meanwhile, undervalued assets and investments in developments are not reflected in the share price of the stocks. Identifying such stocks can go a long way in building a robust portfolio, promising long-term sustainability, and profitability.
In the revisited discount hunting season, let us look at a few tips which could help in spotting bargain shares.
Make prophecy through Revenue and Profit Figures
Along with resilience and carefully crafted strategies, something that remains critical and much more transparent is the cash position of the company. The rising sales and substantially growing revenue are a testament of consumer confidence towards the company and its offerings. Moreover, increasing profit statistics point out that the firm is also managing its cost and expenses well along with realising substantial revenue.
The outbreak and disruptions during the March Quarter might have impacted the performance of many companies, bringing down profits and sales. However, the record of previous figures for the last one or two years could highlight the overall stability of the firm.
Automotive retail player, Bapcor Limited (ASX:BAP) saw its share price decline by 0.513% on 30 June 2020 (at AEST 12:12 PM) and was trading at AU$5.82. The Company in its business update on 25 June 2020 indicated that COVID-19 restrictions did not severely impact its business, while it saw more robust than expected demand after relaxations.
Bapcor for the year ending 30 June 2020 estimates the NPAT between AU$84million-AU$88million, subject to normal year-end audit procedures. Meanwhile, for the half-year ending 31 December 2019, it recorded its revenue rise by 10.4% and Proforma EBITDA and NPAT up by 4.6% and 5.1%, respectively.
Stocks in Limelight rarely gives Hot Bargains
The ‘Teslas’ and ‘Apples’ of the Australian Stock exchange often witness exaggerated movements with the slightest news. Many overanalysed stocks rarely have the scope for even meagre discounts as investors are ready to grab even the slightest opportunities. Thus, the current situation demands diving deep into the analysis to cherry-pick the stocks which offer substantial discounts.
Worley Limited (ASX:WOR) was awarded a contract by Siemens Gamesa Renewable Energy for statutory inspection and general maintenance of wind-turbine-generator lifts and cranes on the offshore wind farm in London Array across all turbines. The Company was also granted a three-year contract for Alcoa’s mining, refining and smelting operations. WOR, in its HY2020 results, reported increased EBITA by 126% from the previous corresponding period.
Gauge Stocks Benjamin Graham Style
The philosophies and lessons from the father of value investing, Benjamin Graham can be used to sail profitably across volatile market conditions. For analysing the stock attractiveness, Benjamin Graham’s technique of Net current asset value (NCAVPS) can be utilised.
NCAV calculation for any stock involves subtraction of total liabilities from the current assets and then dividing the difference by the number of shares outstanding. The financial metric points at the asset value of the company and Graham principles highlight that shares trading 66% below than NCAVPS can be lucrative purchasing options.
The substantial margin of safety advocated by the investing expert could help in evading the market crunches during uncertainty.
Relative Numbers would Help
The interdependency of the different financial facts and their permutations are often an indicator of financial performance in a crisp numerical figure. Several financial ratios can come in handy when one is planning to crunch the numbers for further clearing their investment stance.
For value investment focus and outlook for bargain hunting, one could use Price-to-Earning (P/E) Ratio and Price-to-Book (P/B) Ratio while P/E ratio indicates that if the stock is overvalued or undervalued and to what extent, the P/B ratio would highlight current trading price in relation to its intrinsic value.
Fortescue Metals Group Ltd (ASX:FMG), having P/E ratio of 16.600 as on 30 June 2020 saw its stock giving returns of 36.14% and 27.55% in the past three months and on YTD basis, respectively. Meanwhile, Champion Iron Limited (ASX:CIA) has given returns of 65.66% and 3.79% in the last three months and six months period, respectively.
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