Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Art Bechhoefer who wrote (45944)	8/28/2001 5:52:12 PM
From: Thomas Mercer-Hursh	Read Replies (1) \| Respond to of 54805

Isn't book value an awfully conservative measure for high tech companies that often have great value in IP that doesn't show on their books at all?

To: Art Bechhoefer who wrote (45944)	8/28/2001 6:46:52 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 54805

Regarding use of net change of book value to establish a "worth". I suggest caution because some elements of book value have questionable worth. Not to say Book/Share is without merit amongst the valuation toolchest, but that as with all other methods, it's important to review the constituent components. Goodwill for example. How should that be treated? JDSU shareholders might have something to say about that. If a company goes and purchases completely worthless pyramid.com for ten billion in shares, well under purchase accounting, book value goes up by 10 billion (goodwill), shares go up accordingly. Net change in book/share is zero, yet all shareholders are diluted so intrinsic value per share goes down. Hmmm.... If book/share is to be your primary tool, then at least I would suggest augmenting it to steeply discount the "gooey" assets appropriately. One thing I do find greatly useful is to watch the change in ratio of book value amongst asset classes. So perhaps we can agree that assets/share form a key element of valuation (this is what you are buying after all). Then add the prospective ability of the company to increase assets per share into the future (discounted forward free cash flow)... and then measure how well they do by watching the changing disposition of assets amongst the various classes. John.

To: Art Bechhoefer who wrote (45944)	8/28/2001 10:28:29 PM
From: Seeker of Truth	Read Replies (1) \| Respond to of 54805

Certainly return on the book value, i.e. annual % growth of the book value, for nondividend paying companies, is an interesting and often useful measure. It will say, other things being equal that company A is doing better than company B. But it will not tell us at what price to buy and what price is too ridiculous to hold at. The question is, should we use the growth rate of the book value instead of the analyst-projected growth rate in the future of the cash flow? The problem with the return on equity is that it can be increased by increasing the debt, always as long as the interest paid on the debt is less than the return on assets. I have found the return on assets an even more useful number than the return on the book value. And a very revealing number is the ratio of the return on assets to the return on equity(aka book value). When I see a big discrepancy then I know the stock is too highly "geared" as the British say. I like a return on assets of at least 12%. This eliminates many companies. But again it doesn't give us buy and hold upper bounds directly.