There are plenty of ratio, data and number which is useful, but do not judge merely on those number alone. Rigid number sometimes doesn't reflect the real situation nor guide us to the future. For eg. during 2008, all O&G sectors were having good time and earn big buck, but since after the financial crisis, business condition no longer the same. Some are struggling to secure contracts, some are struggling for cashflow etc issue.
So if one uses the old data then it could be misleading.

There are many others aspect need to consider as well.

Another eg.
The company may have an asset of Rm2.00, and share price is trading at Rm1.00.
Based on number alone, it could be severe undervalued. But you need to see whether the company management utilise the Rm2.00 asset efficiency or not and how well and sincerity they treat shareholders across.
The management taking care of minority shareholders generally being well received and has higher premium than a company management never take care of minority shareholders benefit.

How do u define value? What is undervalued?

i do a lot of research on stocks, there are dozens of ways of evaluating a company, but I've found what I believe to be the best.

Here are some of the other "interesting" ways of evaluating a stock. hint hint: this isnt actually what I use.

1)Taking the cash holdings of the company out of the market capitalization, if the company has a market cap of 150 million at RM1.00 per share and an NTA of RM1.60 and holds 90million in cash. You take out the cash holdings from their market cap, essentially the business is being valued at RM0.40. So here you have a business that is capable of generating cash of RM0.60 but is being sold for 40 cents.

2)Identifying turn around companies, these are companies where they used to be profitable, but because of a slowdown their stock price has been hammered down till unreasonably low levels. The companies earnings have shown a steady recovery, but the stock price has been staying at the price it was at when business was terrible.

3)Identifying gaps between a shares price and its earnings per share. If the earnings of the share has been steadily increasing but it's price has stagnated, is it undervalued?

4)Balance sheet clean ups, companies that have cleaned up their balance sheet by reducing and getting rid of all their debt while maintaining an unreasonably high NTA vs their share price. EG: Company A has 200million in assets but holds 100 million in debt, the company gets rid of all their debt, so they have 100 million assets and no debt, but their share price is only 30~40% of what they are worth, eg:the market cap is only 30million. The rational is that by reducing all their debt, they have taken away any risk of defaulting on their loans, hence no more risk, but the business is still being valued below NTA.
and many more...

just for the record,

TGUAN (Thong Guan), qualifies for 1,2,4 of these methods of identifying an undervalued company. So is it undervalued?

Point 1)
Say you have a company that is selling at RM1.00 at the stock market with an NTA of RM1.60. This company has RM0.60 in cash holdings, because the cash is not being used to run the business, it is not part of the business. So when you value the business, you take out the RM0.60 from their share price, because essentially if u buy over the business for RM1.00 per share, you will get RM0.60 in cash, the rest of the business that has managed to generate that RM0.60 is only being valued at RM0.40.  RM1 - RM 0.60 = RM0.40.

So this RM0.40 is the price of the business after taking away its cash holdings. Hence the 40 cents price tag.

Point 4)
Give u an example, say there is a company that is being sold in the stockmarket for RM0.30 per share, but their NTA is RM1, this company is selling very much below their NTA, hence it is seriously undervalued is it not? But the reason for it being undervalued is because it has not been very profitable and they hold a large amount of debt. If there was a very bad year the potential for bankruptcy might be quite high since they owe RM100million. So they clear all their debt and sell off all their assets that are not generating money. They now have RM100million worth of assets and zero debt, but their stock price hasnt taken into account the balance sheet clean up that they have gone through, it is still being priced as if they might go bankrupt because of high debt.

OK me talking rubbish again. 


There are a number of stock that is debt free. But NTA wise is Rm3-4, but share price is trading at Rm1.xx-2.xx

Reason?
Because the company can only generate about 10 cents profit each year or less than that, not because there are in debt or having risk of bankrupt, which the share price on market move based on the PER which how much investor can get a return from the share price through dividend which generated from the profit.

Point 1 is pretty valid, and true.
But. As a minority shareholders, if the major shareholders are not treating well the minority shareholders, then miniroty shareholders are getting zero from the cash value of the company holds.
As company can opt to hold on those cash forever without distributing at all.
So generally  market reaction and pricing is towards profit and dividend given.
No doubt, it is very good in term of "undervalued" situation.
But you just need an event of mis-managed, or whatever unfavourable circumstance, then the cash position can go within short period of time.

Point 4
Clean balance sheet now can still turn 'dirty' balance sheet afterwards, if the company is making a loss afterwards due to whatever reason, from irrecoverable receivables to making net loss in margin.
Which in turn, even a company has significant net cash value, a loss making in the future can eat into the cash position as well.

Yup, debt free is definitely good, which mean little risk of the company going down. But a loss making and negative cashflow resulted from it can eat into the cash position.
NTA can shrink pretty fast without any debt built up with significant loss making with negative cashflow.

Yup, that's something investors should be aware of.

On going business operation, business health is the most important aspect investors should be aware of.

Even lately few years, we had seen company write off huge amount of receivables resulted huge losses incurrred.
NTA is made out of your net asset situation aka your asset worth, your holding cash, your receivables/creditors etc.

When you are making a loss from the business aka you registered a loss in your P&L, then it will shrink your balance sheet either from eat into your cash position or whatever source of your company fund/asset worth, increase in borrowing etc. Losses needs to come from somewhere.
So it will result in shrinking your NTA.

Disciple,

There has been cases where the MAJORITY SHARE HOLDER use their voting power to get the GOOD COMPANY to bail out the weak company.  It could be loan with low or zero interest.  Or, in the MORE SERIOUS CASE, reverse takeover.

So, even this company has no losses, it may be used to bail out other company with losses.  Beware who is the major share holder of the company and how the major share holder had behaved.

Dreamer

Disciple,

Is this for Malaysian Stock Market??  If yes, 99+% of the time, it is IRRELEVANT.

The FIRST QUESTION that you should ask is DO YOU TRUST the numbers??  If you don't, how does calculating over the NUMBERS that you CANNOT TRUST matters??  Garbage in garbage out....

There are ONLY 5 counters or less worth investing in KLSE.

Dreamer

This is just flat out wrong. The bad apples are mostly government linked companies, thats where all the hanky panky things disappear into, companies like MAS, Proton, these are the ones u need to watch out for.

There are so many great companies out there. So many outstanding underresearched companies.

Another important aspect Dreamer has brought up is the company management and major shareholders which we cannot take lightly.

Be sure the company management has good track record, treat well minority shareholders, as well as major shareholders are fair and square throughout, which also quite important for long term performance of the company eventually stock price.
GLCs or not also something issue need to be considered, as sometimes GLCs may have some political issue, political interest, social interest or whatever reason, that the company cannot operate solely based on profitability and business consideration alone factor.

It is very important to learn how to analyse company financial report, although you don't need to be sophiscated to dig one by one throughout, but the first 3 important area is how to look through the company P&L, Balance Sheet and Cashflow to determine the health of company financial situation, which just take sometimes, already can understand it.

I would say there is never right or wrong in investment.

If one has lesser risk appetite, then settle for a 5-8% return rate, which invest in big cap or bond area, then it is "right" for him/her

If one has higher risk appetite, then want to chase for 20-30%, then opt to invest in second liners, smallcap or whatever riskier asset, then it is "right" for him/her also.

We cannot say the 20-30% potential gain asset is better than 8% one, as the risk associated with is different to start with.

Just invest suit to individual risk appetite and preference. Investment is never a 1+1=2. There are plenty of unforseen circumstance or some risk we never expect nor foresight, as future is never known. 

We always welcomed any taught/opinion, which is beneficiary to all which open out our mind, view regarding the investment field. 
The more we know how others invest, the more better we equip ourself.

Some experience investors may totally dislike glc, which is understandable. (Just need to look through the historical performance of GLCs stock, then explain it all)
Some experience investors may not prefer smallcap, which is understandable. (Look back second board counter history as well as Mesdaq)
Some may opt to his/her own liking stocks, which is understandable (because over the decade, they consistently give good dividend, and improving)

Having said that, surely not all counters as above mentioned perform the same or has poor performance one, as there is never a generalising case.

But there is nothing wrong with their personal experience and opinion.
Everyone come out with opinion has their own reason, and experience associated with it.

The most important is to look why others have such an opinion. One not necessary agree with the opinion, but look through why there is such opinoin arise is always good and beneficiary in term of future decision making, and serve as own reminder.