OK so I like looking at stocks. I don't really have money to buy stocks but I like to learn and play.
One if not the hardest thing about picking stocks is determining valuation. (how cheap or expensive is a particular stock).
Looking at the ratio of a company's market capitalization (total value of all the company's stock) to its book value (total value of a company's assets) is a good starting point for determining the proper price of a stock. The price determination is more valuable when you also include the total liabilities of a company in the comparison.
I calculated the ratio of the market capitalization to the book value minus the total liabilities for several car companies (compare).
Prices are from 11/4/07
The results are interesting. It looks like the lowest number (that is not a negative number) would be the best stock value (the cheapest).
First off both GM and Ford have more liabilities than assets would lead me to not buy their stock (how can their stock be worth anything??).
It may be important to look at the companies in there respective regions.
Out of the 3 Japanese companies it looks like Nissan has the cheaper stock
Out of the 3 US companies Daimler Chrysler with less liabilities than assets is the clear winner.
Volkswagen being a European company is kinda by itself and the clear winner out of all of them. Even after subtracting for liabilities the companies assets are 1.3 times the market capitalization. Meaning that if the company ended today and sold off all its assets and paid its debtors first, the stock owners would still make a 30% profit.
I may be selling my TM stock to by VLKAY soon.
I know there are problems with this method as with all valuation methods but it seems like a good starting point.
What do you think? Criticisms and suggestions welcome. I'm still learning.
I calculated the ratio of the market capitalization to the book value minus the total liabilities for several car companies (compare).
Prices are from 11/4/07
| HMC | TM | NSANY | VLKAY | DAI | GM | F | |
| market cap | 67 | 180 | 47 | 29 | 111 | 21 | 18 |
| Assets | 105 | 285 | 108 | 194 | 270 | 186 | 278 |
| assets/cap | 1.57 | 1.58 | 2.30 | 6.69 | 2.43 | 8.86 | 15.44 |
| liabilities | 66 | 182 | 78 | 156 | 221 | 191 | 282 |
| Compare | 1.72 | 1.75 | 1.57 | 0.76 | 2.27 | -4.20 | -4.50 |
The results are interesting. It looks like the lowest number (that is not a negative number) would be the best stock value (the cheapest).
First off both GM and Ford have more liabilities than assets would lead me to not buy their stock (how can their stock be worth anything??).
It may be important to look at the companies in there respective regions.
Out of the 3 Japanese companies it looks like Nissan has the cheaper stock
Out of the 3 US companies Daimler Chrysler with less liabilities than assets is the clear winner.
Volkswagen being a European company is kinda by itself and the clear winner out of all of them. Even after subtracting for liabilities the companies assets are 1.3 times the market capitalization. Meaning that if the company ended today and sold off all its assets and paid its debtors first, the stock owners would still make a 30% profit.
I may be selling my TM stock to by VLKAY soon.
I know there are problems with this method as with all valuation methods but it seems like a good starting point.
What do you think? Criticisms and suggestions welcome. I'm still learning.
2 comments:
Spenc..
some good solid analysis here.
You've done your homework...
You should send this to Kurt for his comments/perspective..used to work at Charles Schwab..
Spencer, good work. But, before you go buying into automotives.. Check out there past performance and plans for future..
You should look to stocks as part of you long term investment plan.. Where is the next google, microsoft, or steady burners.. Read more about Warren Buffet.. You can start with just 10 stocks and watch them grow.. over the years not trade them tomorrow.. Check out some companies that are investing in oversea growth or new technology.. From Sandy's mom. I was here looking to see if anyone had posted pics of all the kids.
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