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Sharing of technique: A guide to get High Growth company and its Value
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A guide to get High Growth company and its Value
1)      How to find a “High Growth” company? And,
2)      How to calculate how much the share worth based on growth?
Things to know first:
a)      This model is best use for organic growth only, manual adjustment is needed, if the company is undergoing in-organic growth (M&A, Expansion).
b)      Price to Earnings ratio (PER) is the main valuation method which guided by Return On Equity (ROE) number
c)       This model did not take company’s gearing ratio into consideration. Analyze separately if needed.
d)      This model might not work well if the company does not experience revenue growth
Nine steps to get High Growth company and its Value:
1)      Get a company with average ROE 12% and above for 3 years
2)      Get the company’s 3 – 5 years revenue growth rate
Example: average revenue growth rate from year 2013 to 2017
3)      Getting the revenue for next financial year (expected revenue)
Example: answer in step (2) add to 2017’s revenue, to get 2018’s revenue (expected revenue)
4)      Get the company’s 3 – 5 years average profit margin
5)      Getting the “expected net profit”
Example: answer in step (3) x step (4) = 2018 net profit (expected profit)
6)      Getting Earnings Per Share (EPS)
Example: answer in step (5) divided total number of shares
7)      Applying PER valuation guided by ROE values
Example: if ROE 10%, PER = 10x; ROE 15%, PER = 15x; ROE 20%, PER = 20x
8)      Apply appropriate discount valuation for conservative purpose
Example: apply a lower average profit margin and PER valuation
9)      Get the share value
Example: answer in step (6) times step (7)
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