XlsValuation : value a company by using 3 different time-tested models

Une file pour centraliser les remarques des utilisateurs anglophones de XlsValuation.

Alexander a écrit :

Dear Philippe,

Thank you very much for the article on Seekingalpha.com. I found it very helpful and complementing the description of XlsValuation in the “guide d’utilisation”.
The article is all the more interesting for me because I’m considering buying into my portfolio DELL’s shares, but, looking at its steep decline, I’m somewhat hesitant. On the one hand, I do not believe that PCs are dying (I for myself cannot imagine working without my desktop PC in the office or without my laptop at home; iPAD is a marvelous invention, but I regard itlargely as a content-consuming toy). On the other hand, Mr. Market seems to have sentenced DELL to death J, which means DELL may well become a value trap for many years to come. I was going to do DELL’s valuation analysismyself with the help of your XlsValuation, but you outstripped me. Thanks
again.

Now, if you allow, a couple of practical questions.

First, I cannot understand how weighting of historical multiples is calculated by XlsValuation. On the one hand, in the “guide d’utilisation” (p. 16) average figures (12,5; 23,5; and 2,3) are given 30%, 17% and 53%, accordingly, which leads to the conclusion that they are somehow weighted in a reverse proportion (which is only fair). However, in the latest article on DELL (para. “Historical multiples”) 12,6 and 3,7 are given equal weights (27% each) and 0,4 has the weight of 47%. So, my question is how are weights of historical multiples calculated?

Another question is why don’t you use a well known Ben Graham formula for valuing a business (V=EPS x (8,5+2g)? While asking this I cannot but point to a large discrepancy between your valuation of DELL ($17,3) and that calculated with the help of FastGraphs tool authored by Chuck Carnevale (see attachment), which revolves around $30. I completely share your proposition
that “la valorization d’une societe est plus un art qu’une science dure”, but almost a 2x difference is somewhat puzzling. The same goes for HPQ, although for WU the results are almost identical (see attachments). What if you complemented XlsValuation with the Graham valuation formula just to make it even more comprehensive and avoid such kind of (unsound) queries?

I’m sorry for being long, but these are questions that came to my mind while getting acquainted with XlsValuation.

Best regards,

Alexander

Hello Alexander,

About Dell :
Seems simply to me that Mr Market offers to us an opportunity. :-) Of course, we have an uncertainty about the desktop PC, but I’ll take care of this in my valuation. Desktop PC should decline really strongly in order that I’ll have to reconsider it.

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About Ratios Weightings:
Weighting of historical or peer multiples are calculated in proportion of the amplitude of the ratios.

For example :
Lowest PE: 10
Highest PE: 30

Lowest PtoBook: 1
Highest PtoBook: 1,1
will give an higher weighting for PtoBook.

But:

Lowest PE: 10
Highest PE: 12

Lowest PtoBook: 1
Highest PtoBook: 1,5

will give an higher weighting for P/E. You get the idea?

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About Graham Formula:
I’m not a fan of Graham formula. In the original paper, Graham explain his formula is a gross simplification for pedagogical purpose. I think this formula have been overstated by some bloggers.

About Fastgraph:
About fastgraph, the tool is certainly useful to value "steady" company like Kellogg or JNJ, but I am not sure about its relevancy for technological companies that may face disruptive events.

Best regards from Paris,

Philippe

Mots-clés : xlsvaluation