Welcome to Valuewala, where I share insights into my research and investment journey as a value investor. My primary objective is to identify and invest in companies that are trading below their intrinsic value, offering a unique opportunity to capitalise on market inefficiencies.
While traditional value metrics such as P/B or P/E ratios serve as benchmarks for many, my approach delves deeper by conservatively projecting future earnings and discounting them to present value. This method helps me uncover stocks trading at a significant discount to their estimated value, making them attractive investment prospects.
In addition to future cash flow analysis, my investment decisions may be guided by other factors that indicate a stock's price is undervalued. These can include balance sheet analysis, mean reversion, arbitrage opportunities, or companies that trade below their net current asset value. Occasionally, I may even invest in companies at or above my fair value estimates if their earnings and growth prospects offer greater stability and confidence.
To initiate my search for undervalued stocks, I rely on the EV/EBIT ratio as my primary screening tool. This metric provides a more comprehensive comparison across companies with varying debt levels than the P/E ratio. I specifically target stocks with low EV/EBIT multiples, both in absolute terms as well as relative to their industry peers.
After identifying potential investments through this screening process, I delve into the reasons behind their lower multiples. Companies may face short-term challenges, or there might be imminent events affecting their operations and earnings. If I determine that the market is overly focused on these factors, thus depressing the stock price, I may decide to invest in the company.
Join me on this journey as I share my discoveries, successes, and lessons learned in the ever-evolving world of finance.