In investment world, one of the hardest things is stock valuation. According to me, stock valuation is not a straight forward mathematical modelling; rather it’s a financial art. Indeed stock valuation gives us an imaginary or hypothetical price target but it’s a quest for intelligent guessing.
We all know that Basundara Paper is going debut in DSE in next Monday, 2nd July 2018. According to CSE news, this company has earned Tk. 1.85 per stock in first nine months and its NAV is 35.07. Therefore annualize EPS and NAV will be 2.47 and 35.74 respectively.
Now, the million dollar question is what will be the initial price? With limited resources, I am trying to answer this or you can say – I’m going to make a foolish attempt to valuate this company, especially when country’s finest institutions and their professionals already set the benchmark at 80.
Using Benjamin Graham’s conservative valuation approach the worth of the company is somewhere around 44.6 [Square root (22.5*EPS*NAV) = Square root (22.5*2.47*35.74) ]. Oh! Shocking isn’t it? Let’s do some relative valuation, hope this can intact our respect on professional experts. Currently Market PE is around 17 and price to NAV is 2.11. With the help of these marker ratios the upcoming company should trade around 17*2.47= 42 and 35.74*2.11= 75.4. The average of these three quick valuations is 54! Crap!
Well! Well! The experts already bought this stock at Tk. 80 and some lucky people got it at ten percent discount (i.e, 72). They already paid almost two times high than fair value. Now, we the unlucky people should give them an exit route with handsome profit. So how much shell we pay for this? Unfortunately, my instinct and bitter experience says, we the general investors (or ignorant fools?) are brave enough to pay three-four times higher than fair value. If you are not ready to pay ranging around 140-180 for this script, you should thankful to your contrarian investment mind.
Thanks
So great analysis.
Right. fair value 60-70 (as per bangladesh new ipo). but we will see 300+. Who will buy it above 250, they will be looser. above 200 – they will see the game only but can not be benefited.