stock analysis: technical and fundamental analysis

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Stock Analysis: Technical and Fundamental Analysis

By

Jiroj Buranasiri, CFA

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I. Technical analysis

II. Fundamental analysis

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I. Technical analysis: outline

A. What is it about?

B. Analysis

C. Sources of information

E. For further study

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A. What is it about?

Technical analysis focuses on demand & supply by studying the movement of price and volume.

Its objective is to find market trend and how long the trend will continue to make investment decision – Buy, Hold, or Sell.

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A. What is it about?

Trends: up-trend, down-trend, or sideway (sideway-up, sideway-down)

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B. Analysis

Graphs: Bar

Line

Candle

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B. Analysis

Graphs: bar, line, candle Techniques:

Moving Average (MA) Exponential Moving Average (EMA) Moving Average Convergence/Divergence

(MACD) Money Flow Index (MFI) Rate of Change (ROC)

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B. Analysis

Techniques: Relative Strength Index (RSI) Stochastic Volume Volume +MA William % R Parabolic Bollinger bands

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B. Analysis

Techniques Fibonacci Dow theory Elliot wave

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Remarks

Price moves in trend. History repeats itself. Volume normally goes with trend. Volume typically leads price during bull

move. Rising price with falling volume is abnormal.

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C. Sources of information Efinancethai, Reuters, Bloomberg, Etc.

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C. For further study Book

Technical Analysis: The Complete Resource for Financial Market Technicians by Charles D. Kirkpatrick and Julie R. Dahlquist, FT Press,

The Investor's Guide to Technical Analysis by Curt Renz and Curt Renz, McGraw-Hill,

Etc. Website: http://finance.yahoo.com,

http://stockcharts.com

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II. Fundamental analysis: outline

A. What is it about?

B. Analysis

C. Sources of information

D. For further study

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A. What is it about?

Finding fair value of stocks. Objective is to check if market price is

cheap, fair, expensive for investment – Buy, Hold, or Sell or to explain the change of market price.

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B. Analysis: stock valuation process

1. Understand firm and stock’s nature

2. Forecast

3. Choose valuation method

4. Make decision

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1.Understand firm and its stock’s nature

From company itself Financial statements, IR

From other sources Research paper, Firm’s competitors Etc.

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2. Forecast Make assumptions Information, information, information

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Information’s issues What information is relevant? News

concerning risk and return When will it come out?

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Getting start (use consolidated)

Restate statements and work from restated statements.

Analyze relevant data and forecast: revenue break-down, cost break-down

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Analysis:

Top down Bottom up Top down and bottom up

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Top down / Bottom up Top down:

Economy -> industry -> firm -> stock Globalization – impact.

Bottom up Firm -> industry -> economy

Top down and bottom up: Economy <-> industry <-> firm <-> stock

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Economy Economic variables: GDP growth rate,

unemployment rate, etc. Economic life cycle: changing Domestic & international: globalization

impact

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Industry Porter’s 5 forces Boston matrix: star, dog, cash cow,

question mark Change in external factors: social,

regulations, consumer’s taste, etc. Industry life cycle: sun-rise, sun-set

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Company Management quality Accounting – clean, dirty Business nature - income, cost, margin’s

volatility, key success factors, position, strength, weakness etc.

Financing Growth opportunity

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Company

Dream & do

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Remarks

If the success (failure) is consistent or temporary.

Past success doesn’t guarantee future success.

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Understand the stock’s nature Major investors Sensitive to foreign fund flows Defensive or cyclical Etc.

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3. Choose valuation methods Choosing criteria:

Characteristics of firm Data: availability, quality

Valuation methods Discount cash flows Price multiples

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Discount cash flows Discount rate

CAPM, APT

Cash flows Dividends, Free cash flow for firm (FCFF), Free

cash flow for equity (FCFE), Residual income (RI)

Growth rate = ROE x b

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Price multiples Price Multiples

Link to competitors, industry, past Link to company’s fundamentals – discount cash

flows

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Price multiples: PE multiple Trialing PE (Current PE)

Po/E1 = (D1/E1)/(r-g) = (1-b)/(r-g)

Leading PE (Forward PE or Prospect PE)Po/Eo = {[Do(1+g)]/Eo)}/(r-g) = [(1-b)(1+g)]/(r-g)

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Price multiples: PBV multiple Book Value is unlikely to be negative. Compared to earnings, book Value is less

manipulated. PBV = (ROE-g)/(r-g)

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Price multiples: P adj BV multiple Adjusted BV = BV – (NPV – Acc. Provision)

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Price multiples: PS multiple No negative sales Sales is less likely to be manipulated.

Po/So =(Eo/So)(1-b)(1+g)/(r-g)

But sales might not mean profit. (No information on cost structure)

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Price multiples: PCF Cash flow

EPS + non-cash charge CFO FCFE EBITDA

Less manipulation

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4. Make decision Buy (undervalued, buy, trading buy, strong

buy) Sell Hold

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Some technical terms in fundamental analysis ARPU GRM Baglog BDI NIM L/D ratio CAR CASA CAPEX OPEX P&L B.E.1.1

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C. Sources of information

Anything affecting company’s earnings(growth, volatility)

Newspaper: local (Bangkok Post, The Nation, Bangkokbiznews, etc.) and international (The New York Times, Financial times, etc.)

Internet: www.settrade.com, www.set.or.th, www.sec.or.th, www.bot.or.th, www.nesdb.go.th, www.worldbank.org, www.imf.org, http://www.efinancethai.net, etc.

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C. Sources of information

Reuter, Bloomberg, Setsmarts, E-financethai Analyst meeting, opportunity day Company presentation

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For novice What data?

To under stand a company’s nature, start with 56-1 form, company’s

presentation, investment analysis paper, opportunity day meeting and

company’s annual report Where to find? When it will be release?

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Financial data (SEC, SET) Why SEC, SET?

To be fair to public, companies should not provide financial data to a particular investor (or group) before public.

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SEC_ financial statements

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SET_ latest news

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Opportunity day_ meet company’s management team

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Company’s presentation From company’s website.

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Investment research paper

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Where to find research paper? Brokers

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Where to find research paper? Free?

•Free?

•Free?

•Free? •Free?

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For further study Books:

Security analysis, Benjamin Graham and David L. Dodd, McGraw-Hill,

The intelligent investor, Benjamin Graham, HarperCollins Publishers,

Analysis of equity investments: valuation, John D. Stowe, Thomas R. Robison, Dennis W. McLeavey, Association for Investment and Research, etc.

Research paper Websites:

www.tsi-thailand.org, www.ft.com, etc.

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Q & A

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Thank you