Thursday, October 9, 2008

Case Study : Buy Stock IOICorp 20081008



This is a short post just lay down my scratch pad showing how I determine the value of a stock without step by step guide.

The table on the left is IOICorp EPS trend in the past.

If I take 1990 to 2006 for calculation, the EPS growth rate is 28.8%

If I forecast future EPS for the next 10 years using above growth rate, I would get 9.28

Assuming PE is 16, the Future Value of this stock is $148.48




The numbers used in above calculation is up to 2006 only, so let's do a quick check.

1.  2008 Jun EPS is 0.991, so EPS growth rate used above is ok.
2.  There is a 1 to 5 split on Jun 2007, so all calculation above should reflects that too.

After 1 to 5 split, the Future Value of the stock becomes $29.696

My target return for this investment is 15% in 10 years, so $29.696 future price translate to $7.424 today price.

I also use 50% as a safety margin so that if things go wrong I can still feel confident that I am in good shape, so finally I think this stock is worth $ 3.712 !!

The last price I got for this stock is about RM 3.7   Seems like the price of this stock is ready to be bought in.

All I need to do tomorrow is to reconfirm PE value and read some of the latest company report on their future plan, any change of management etc.  If nothing serious came out from those, I am buying this stock NOW !!


=== 2008 10 09 ====
Sorry guys, just did a check this morning ... PE for plantation is at most 10x, so this is still a NO GO stock.

2 comments:

Anonymous said...

What is PE?? Im a total n00b to investment..maybe in the future it will be best not to use short forms only certain people understand

Michael Tsen said...

there will be more writings on stocks selections ... this post is just to share example of how I determine what and when to buy.

PE stands for Price Earning ratio. The formula is

PE = Stock Price / EPS

where EPS is Earning Per Share.

If a company's earning is $100,000 and it has 1 million shares, then EPS is 10 cents. If the stock price is $10, then PE is 100

PE definition is simple, but how to use this PE ratio is very subjective and require quite an in depth study.