Center for Value Creation
On February 29, 2024, Kweichow Moutai (600519. SH) closed at 1,695 yuan, Shandong Iron and Steel (600022.SH) closed at 1.38 yuan, judging from the stock price ranking of 5,346 stocks on the day of A-shares, Kweichow Moutai's share price was the highest, and Shandong Iron and Steel's stock price was at the bottom; Is Kweichow Moutai's share price overvalued? Is Shandong Iron and Steel's stock price undervalued?
From the phenomenon point of view, the stock price is the price of the market transaction, which is the result of the game between the long and short sides, but in essence, the stock price is the game based on the value judgment of the long and short sides, and the change of the stock price is affected by the judgment of the value trend; therefore, the stock price is the market's valuation of the intrinsic value, is the reflection of the intrinsic value, and is determined and supported by the intrinsic value.
The market ranking of stock prices is only a comparison between companies, and cannot reflect the relationship between intrinsic value and stock prices, nor can it indicate whether the stock price is overvalued or undervalued; judging the level of stock prices by the ratio of purchase cost to stock price can calculate profit and loss, but it cannot reflect the relationship between intrinsic value and stock price, cannot reflect the opportunities and risks of stock prices, and cannot explain whether stock prices are overvalued or undervalued.
Therefore, we should look at the correlation between the stock price and the intrinsic value, and by comparing the differences between the two, we can judge whether the stock price is overvalued or undervalued, and only then can we find the opportunities and risks of the stock price.
How?
1. Calculate the value support ratio of the stock price
The value backing ratio refers to the degree to which value supports the stock price. According to the valuation model of economic added value, intrinsic value = equity book value + current performance continuation value + future performance growth value, therefore, the stock price support ratio is based on the assumption that the value stock price is equal to 1, and the equity book value stock price ratio, current performance continuation value stock price ratio, and future performance growth value stock price ratio are calculated, reflecting the concretization of intrinsic value to stock price support.
The book value of equity is also known as owner's equity, shareholders' equity, and net assets. The calculation method is: book value of equity = total assets - total liabilities.
The continuing value of current performance refers to the discounted value of the company's current performance based on the company's current performance and the available dividends under the assumption of sustainable operation, which reflects the contribution of current performance to shareholder value and the value that can be continued in the future. The calculation formula is: current performance continuation value = net profit x available dividend rate / equity capital cost ratio.
The value of future performance growth is the estimated future value of future growth performance, which is the growth value that exceeds current performance. Generally, the external market judgment is adopted, that is, calculated according to the external market value, and the formula is: future performance growth value = market value - equity book value - current performance continuation value.
According to the calculation, the value support ratio of Kweichow Moutai's 1726 yuan share price is 10.60% of the equity book value stock price, the current performance continuation value stock price ratio is 31.61%, and the future performance growth value stock price ratio is 57.79%. The value support ratio of Shandong Iron and Steel share price of 1.38 yuan is 209.24% of the book value of the stock price, the current performance continuation value of the stock price ratio is -0.01%, and the future performance growth value of the stock price ratio is -109.23%.
We can see that Kweichow Moutai's share price has the highest support rate for future performance growth value, followed by the current performance continuation value, and the third is the equity book value. The highest support rate of Shandong Iron and Steel's stock price is the book value of equity, and the support rate of the current performance continuation value and the value support rate of future performance growth are negative.
Rational 吗?
2. Revise the value support ratio of the stock price
The stock price is the value expectation given by the market, the book value of equity, the value of the continuation of the current performance, and the value of future performance growth are the intrinsic value of the operation of the enterprise.
1. Equity book value support ratio
The book value support ratio of equity is the proportion of the book value of each share of equity to the stock price, reflecting the degree to which the book value of each share of equity supports the stock price. Generally speaking, the lower the indicator, the lower the support rate of the equity book value to the stock price, reflecting the high efficiency of net assets and the large market expectation of the future performance of the enterprise; The higher the indicator, the higher the support ratio of the equity book value to the stock price, the lower the efficiency of net assets, and the smaller the market's expectations for the future performance of the enterprise.
Therefore, according to the law of enterprise growth, the adverse risk of equity book value to the growth of enterprise value should be evaluated, and different corresponding negative scores should be given to form a reduction coefficient to reduce its negative impact and make the support for stock price more reasonable.
According to this method, the book value of Kweichow Moutai's equity is 10.60%, which is reasonable, and the risk coefficient is 0. Shandong Iron & Steel's equity book value stock price ratio is 209.24%, which is unreasonable, and the risk coefficient is -0.1.
2. The current performance continues to support the value
The current performance continuation value support ratio is the proportion of the current performance value per share to the stock price, reflecting the degree to which the current performance continuation value per share supports the stock price. The higher the indicator, the higher the support for the stock price, and the lower the indicator, the lower the support for the stock price.
Generally speaking, the contribution of mature enterprises is relatively high, some even as high as more than 80%, while the proportion of growth enterprises is relatively low, even around 0.01%. Listed companies below 0.01%, especially those that are negative, have unstable stock prices.
The continuation value of the current performance is estimated based on the current available data, which has more knowability and certainty, and is more likely, but there is also a risk of disadvantage. Therefore, according to the law of enterprise growth, the adverse risk of the current performance continuation value to the growth of the enterprise should be evaluated, and different corresponding negative scores should be given to form a reduction coefficient and reduce its negative impact, so as to make the support for stock prices more reasonable.
According to this method, Kweichow Moutai's current performance-to-value stock price ratio is 31.61%, which is reasonable, and the risk coefficient is 0. Shandong Iron & Steel's current performance continues to have a value stock price ratio of -0.01%, which is unreasonable, and the risk coefficient is -0.1.
3. The value support rate of future performance growth
The future performance growth value support ratio is the proportion of the future performance growth value per share to the stock price, reflecting the degree to which the future performance growth value per share supports the stock price. The higher the index, the higher the support rate of the future performance growth value to the stock price, and the higher the market's expectation of the future performance growth value; generally speaking, the growth enterprise has a higher index, some even as high as more than 90%; the index is too high, more than 100%, which will make the relationship with the equity book value and the current performance continuation value low, lack of realistic basis, and the stock price will fluctuate greatly. The lower the indicator, the lower the support for the stock price and the lower the market's expectations for the company's future performance. Generally speaking, the more mature the company, the lower the indicator.
The future growth value is estimated by the external market method, that is, the difference between the stock price minus the first two, which has more unknowns and uncertainties. Therefore. The possibility of future performance growth value should be evaluated according to the law of enterprise growth. Generally speaking, based on the law of corporate performance growth and referring to the compound growth rate that has been achieved in the past three years, the probability of achieving the expected compound growth rate of stock price is evaluated, and the probability coefficient is calculated.
According to the above method, the future performance growth value of Kweichow Moutai is 57.79%, the stock price needs a net profit compound growth rate of 8.72% in the next 10 years, and the realization coefficient is 0.2, and the compound growth rate of performance in the past three years is 15.89%, and the correction coefficient of the compound growth rate is 0.1, so the probability coefficient is 0.3, which is more likely to be realized. Shandong Iron & Steel's future performance growth value stock price ratio is -109.23%, the realization coefficient of the compound growth rate of 1.76% of the future performance of the stock price is 0.2, the compound growth rate of the performance in the past three years is -12.35%, and the correction coefficient of the compound growth rate is -0.3. The probability coefficient is -0.1, and the probability of realization is small.
4. Calculate the intrinsic value correction coefficient
The intrinsic value correction coefficient is calculated by adding the risk coefficient of equity book value, the risk coefficient of current performance continuation value, and the probability coefficient of future performance growth value.
According to this method, Kweichow Moutai's equity book value stock price ratio risk coefficient (0) + current performance value stock price ratio risk coefficient (0) + future performance growth value stock price ratio probability coefficient (0.3) = 0.3, and Shandong Iron and Steel equity book value stock price ratio risk coefficient (-0.1) + current performance value stock price ratio risk coefficient (-0.1) + future performance growth value stock price ratio probability coefficient (-0.1) = -0.3.
5. Calculate a reasonable value support rate
The intrinsic value probable coefficient is added to the hypothetical value support ratio of 1 to calculate a reasonable value support ratio. According to this method, the value support ratio of Kweichow Moutai stock price = 0.3 + 1 = 1.3, and the value support ratio of Shandong Iron and Steel share price = -0.3 + 1 = 0.7.
3. Use the value support rate to judge the level of the stock price
To sum up, we believe that the fair value support ratio of the stock price can be used to reasonably judge whether the stock price is overvalued or undervalued. If the value support ratio is greater than 1, it means that the value is greater than the stock price, and the stock price underestimates the intrinsic value. Less than 1 means that the value is lower than the stock price, and the stock price overestimates the intrinsic value; the smaller the support rate, the weaker the support, and the less likely the stock price will grow; equal to 1, it means that the value is similar to the stock price.
Through the above calculation, although the share price of Kweichow Moutai is as high as more than 1,600 yuan, the value support rate of the stock price is 1.3, which is greater than 1, and the stock price underestimates the intrinsic value; although the share price of Shandong Iron and Steel is only 1.38 yuan, the value support rate is 0.7, which is less than 1, and the stock price overestimates the intrinsic value.
Therefore, it is not possible to judge whether the stock price is overvalued or undervalued by the level of the stock price, but to judge whether the stock price is overvalued or undervalued by the ratio of intrinsic value to stock price, that is, the value support ratio of the stock price, so as to discover opportunities and risks.