There seems to be a lot of talk about valuations and prices over the next week or months or years and how undervalued this share is. Motley Fool have said the share price is over- valued and that’s their opinion based on their own analysis.
So on what basis can we value a share? There are two basic types of stock value: the market value of a stock and the stock's intrinsic value.
A stock's market value is simply the current price the marketplace sees fit to exchange one share of corporate stock for currency. Market price is straightforward, public and an undeniable representation of share value. The open market establishes the current value for a share of stock, as a stock's price is the result of all interaction between market participants. However, the ASX is not perfect and hence there is some manipulations of the share prices which distorts the market price of the share. The retail investor is caught in the dilemma of whether to sell when the prices go down for no reason and taking a loss in the process and when the price goes up to think that some favourable news is forthcoming and contemplate buying or else miss the opportunity. Retailers seem to think that some big boys have a whiff of what’s to come and this exposes the venerability of the retail investors.
Identifying a stock's intrinsic value is a bit more complex, as it is often based upon opinion and open for debate. A stock's intrinsic value is defined as being its "actual" or "real" value. Intrinsic value takes into account a company's intangible assets as well as its growth potential. Brand loyalty, copyrights, patents, projected future earnings and sector growth are all components of intrinsic value.
Comparison is a crucial element to establishing a company's value relative to its peers. Ratios derived from the data included in corporate financial reports give investors and shareholders the tools necessary to measure what a company was, is and will be worth.
It is important to remember that when one purchases a share of corporate stock, one has a claim to a portion of the profits made by that corporation. Strong companies generate profit and warrant a higher valuation, while weaker companies have the potential of rendering an investment worthless. Through the implementation of fundamental analysis on a company's financial reports, strong companies can be readily identified and more sound investment decisions can be made. It is important that one has some financial background to make such evaluations
Investing has a set of four basic elements that investors use to break down a stock's value. There are 4 commonly used ratios that can tell you about a share. Financial ratios are powerful tools to help summarize financial statements and the health of a company or enterprise.
1. The P/B (Price to Book) ratio or Price to Equity ratio represents the value of the company if it is stripped up and sold today. This is useful to know because many companies in mature industries falter in terms of growth, but can still be a good value based on their assets. The book value usually includes equipment, buildings, land and anything else that can be sold, including stock holdings and bonds. Based on MSB’s financials the Book value per share is just under 90 cents.
2. The price to earnings (P/E ratio is possibly the most scrutinized of all the ratios. P/E ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings . A high P/E ratio could mean that a company's stock is over-valued, or else that investors are expecting high growth rates in the future. In the case of MSB as it is still developing its products for commercialisation, it would be futile at this stage to consider this ratio.
3. Because the P/E ratio isn't enough in and of itself, many investors use the price to earnings growth (PEG ratio) Instead of merely looking at the price and earnings, the PEG ratio incorporates the historical growth rate of the company's earnings. This ratio also tells you how your stock stacks up against another stock. The PEG ratio is calculated by taking the P/E ratio of a company and dividing it by the year-over-year growth rate of its earnings. The lower the value of your PEG ratio, the better the deal you're getting for the stock's future estimated earnings. Again this ration cannot be applied to MSB.
4. Dividend Yield. It's always nice to have a back-up when a stock's growth falters. This is why dividend-paying stocks are attractive to many investors – even when prices drop, you get a payment. The dividend yield shows how much of a payment you're getting for your money. By dividing the stock's annual dividend by the stock's price, you get a percentage. You can think of that percentage as the interest on your money, with the additional chance at growth through the appreciation of the stock. We are still a while away from MSB issuing dividends.
P/E, P/B, PEG and dividend yields are too narrowly focused to stand alone as a single measure of a stock. By combining these methods of valuation, you can get a better view of a stock's worth. Any one of these can be influenced by creative accounting – as can more complex ratios like cash flow.
As you add more tools to your valuation methodology discrepancies get easier to spot. These four main ratios may be overshadowed by thousands of customized metrics, but they will always be useful stepping stones for finding out whether a stock is worth buying.
Based on the above it is quite difficult to say at this stage what is a fair market price for MSB and below are the prices of MSB over the years from being publicly listed on 16/12/04:
| Year
|
| Price $
|
|---|
| 1 | 1/1/05
|
| 0.62
|
|---|
| 2 | 1/11/05
|
| 1.13
|
|---|
| 3 | 4/1/11
|
| 4.54
|
|---|
| 4 | 24/10/11
|
| 9.89
|
|---|
| 5 | 1/11/12
|
| 5.38
|
|---|
| 6 | 1/11/13
|
| 6.54
|
|---|
| 7 | 3/11/14
|
| 4.14
|
|---|
| 8 | 17/11/15
|
| 2.02
|
|---|
| 9 | 1/11/16
|
| 1.17
|
|---|
| 10 | 3/11/18
|
| 1.2
|
|---|
| 11 | 1/11/19
|
| 1.78
|
|---|
| 12 | 10/1/20
|
| 2.29
|
|---|
If we look at 2011, where the company was in the early stages of development of its MSC’s, I cannot understand why the price could be at those levels, and even if one at that stage took potential earnings of the future to determine share price, it would have been ludicrous to go in at those levels as the tools for intrinsic valuation could not be applied. Looking at 2016 to 2019 the price appears in my opinion reasonable and based on the current stages of development of its lead products, increasing sales in Japan and the imminent commercialisation of at least aGVHD this year those who bought are sitting on a good wicket.
I would like to list the prices over the years of CSL which was listed on 8/6/94: at a price of $2.30 per share
| Year
|
| Price $
|
|---|
| 1 | 1/7/95
|
| 0.81
|
|---|
| 2 | 1/5/95
|
| 1.00
|
|---|
| 3 | 1/7/00
|
| 10.00
|
|---|
| 4 | 1/12/10
|
| 51.70
|
|---|
| 5 | 1/12/15
|
| 100.00
|
|---|
| 6 | 1/8/18
|
| 200.00
|
|---|
| 7 | 10/1/20
|
| 299.42
|
|---|
What do these two companies have in common? They are both biopharmas and in the business of saving lives. Their products are not subject to instability in demand as medical needs are increasing with population increases and as long as they continue to develop unmet medical needs the companies have a bright future. I have to commend CSL management for the ability to be world leaders and continue to progress in challenging times where technology is improving rapidly. CLS has a share base of 453.87 M and a market cap of $132.12B. The progress over the last 25 years has be phenomenal and $300 a share is just round the corner.
Therefore I would suggest that we be patient and not be critical of what the current share price as there is still buying opportunities and in the years ahead will see shareholders having a good return on their investment and perhaps another CSL in the making.
(20min delay)
