Value Stock Scorecard

Back from my hiatus.

Been busy working and also participated in the Invest Idol Competition (Don’t really think I will win but just trying).

During the preparation of the Invest Idol, I decided I require a more consistent approach to my investment methods. So I created my Value Stock Scorecard.

It is an improvement from my previous approach as it added a series of consistency to how I view ratios and numbers. After inputting the data, each calculation or Ratio will provide a score of -1, 0, 1 or 2, depending on my allocation of the score for that ratio/calculation.

Thus, if all of the individual score adds up to 9 or more (out of 14), the stock is a value stock.

However, I have also added a series of non-score related consideration to further enhance or reduce the possibility of determining if a stock is a value stock.

Factors with Score:

1. Company or Parent Firm must not be from China, Malaysia or Hong Kong – The scandals from the S-chips (can we even believe it’s financial statement), the 1MDB scandal (What is the future of the Malaysia Economy and the currency may drop till ridiculous level – Too much uncertainty) and also some of the Hong Kong Penny Stock scandals happening recently.
2. Net Current Asset (NCA) should be at least 30% more than the Current Share Price.
3. If Point (2) fails, Net Assets Value (NAV) should be at least 50% more than the Current Share Price. The Non Current Assets should be allocated separately and given a discount to the value (If liquidated, value of the Non Current Assets will fall).
4. Cash Per Share should be more than 70% of the Share Price.
5. In addition, Cash should be 40% of Current Assets and at least 1.5 times of Debt at that point of time.
6. Price to Sales should be below 1.5 times.
7. Earning Yield should be more than your country’s 10 year bond yield (or in the case of Singapore – 4%)
8. Dividend should be 4% and the last 3 years of Dividend Payout should be less than 80% for at least 2 of the last 3 years.
9. Debt to Equity should be less than 25% (Preferably less than 10%).
10. Profit Margin to be at least 5% for at least 70% of the time (depending on the listing year, some companies may not have 10 years of financial).
11. Price-Earning Ratio of 10 year Average Earnings should be below 15 (Preferably below 10).
12. 10 year Average Return to Equity should be more than 8%.
13. 10 year Average Return to Assets should be more than 5%.

Factors without Score:

1. Any Right Issues? If there are too many Rights issue, will dilute the NCA.
2. Any Insider Buying? Or Selling? Depends how you see it. I prefer stocks with Insider buying.
3. Is this a Pure Play? Pure Play normally perform better.
4. Any Contingent Liabilities? Is the unknown debt too high?
5. What is the Management Pay? Is it too high?
6. Any Related Transaction that is too high?
7. Is this a Capital intensive firm? If it is, you will need to consider the maintenance of the non- current assets.

I have also added a session of the question to ask when you feel like selling.

I have yet to test it fully, especially on overseas shares (out of Singapore). So far I have found 3 Singapore Shares that pass this test – AP Oil (during when it is at 0.220), Nam Lee Press Metal (0.290) and Chuan Hup Holding (0.330).

However please note that this is a new Scorecard yet to be fully tested and I still do not know the full extent if it really works. For those stocks that pass this test, please do more due diligence on your own if you intend to own them.

PS: I have yet to decide if I should share this checklist free, or charge a minimum sum or do it like kickstarter style. Do update me on your thoughts.

As for my portfolio, I will definitely review it on the next post!