Quickly Gain A Wealth Of Information From The GuruFocus Summary Page (Using Apple As An Example)

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Sep 17, 2014
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When investing in a company, it is not only necessary to know about the company itself, but also how the stock is valued. Viewing a company through its summary page at GuruFocus provides a wealth of information to help understand its financial strength, profitability, growth and valuation, and see how the gurus and insiders are trading the stock. The features of the summary page can help you decide in minutes if not seconds whether or not to further investigate the stock for an investment opportunity. The summary page at GuruFocus should be your first destination when researching a particular stock.

Using Apple (AAPL) as an example, towards the top of the page it can be seen that Apple is a very predictable company with its Business Predictability score of 4.5/5. By moving the mouse over the “question mark” next to the rating, a popup will appear giving more information about stocks with the same rating. Stocks with a 4.5/5 rating have gained 10.6 percent on average while back-testing for the past 10 years. Only 10 percent of the stocks lost money if held for 10 years.

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Below the Business Predictability ranking is the warning signs feature. The feature was highlighted in the recent Barron’s article “Where to Get the Best Accounting Analysis” with the following comment:

GuruFocus (gurufocus.com) is another Website that highlights financial blemishes in the 17,000 North American tickers that it tracks. It prominently displays warning signs at the top of its stock profile pages based on 32 measures of financial strength, profitability, growth, and valuation. A premium feature requiring a $349-a-year subscription: Warning signs are rated either "severe" or "medium."

For example, among Nokia Oyj's (NOK) two severe warnings is a five-year decline in revenue per share (gurufocus.com/analysis/nok) that marks its fall from cellphone pre-eminence. Less obvious is its excessive gap between cash flow from operations and reported net income. A classic loophole enabled by accrual accounting, that shortcoming is behind many of the dangerous ratings New Constructs has handed out lately.

Clicking on the warning sign will take you to the analysis page where more details are available. The severe warning sign for Apple is that its assets have been growing faster than its inventory over the past 5 years. This would also mean the asset turnover is slowing down, possibly caused by less efficiency. Utilizing the 10-Y Financials tab will help narrow down which assets have been increasing. The balance sheet will actually show sharp increases in plant, property and equipment, also meaning more capex spending. Further investigating would be needed to understand why capital expenditures are increasing. With just a couple of quick internet searches I found that Apple is building a large operations center in Texas and opened a new factory in Arizona. This warning might not be as severe as it sounds after all.

The Valuation Box just to the right of the stock’s current price is a very useful tool that will allow you to quickly gain a visual sense of where the stock is priced compared to several valuation metrics based on assets, earnings power and growth. Apple is near fair value based on Projected FCF and Median P/S Value and is undervalued in comparison with its Peter Lynch Value. Below are the characteristics of the valuation methods used:

Valuation Method Asset Based Earnings Power Based Combination of Asset & Earnings Power Growth Considered Comment
Net Cash X Â Â No Cash & Cash Equivalents + Short Term Investments – Total Liabilities
Net Current Asset Value (NCAV) X Ă‚ Ă‚ No Cash and Short-Term Investments + (0.75 * Accounts Receivable) + (0.5 * Inventory) - Total Liabilities
Projected FCF Ă‚ Ă‚ x Yes (Growth Multiple)*FCF(6 year avg) + 0.8*Total Equity(most recent)
Graham Number Ă‚ Ă‚ x No Square Root of (22.5 * Tangible Book Value * Earnings per share)
Median P/S Value Ă‚ X Ă‚ No Historical range traded relative to sales.
Peter Lynch Fair Value Ă‚ X Ă‚ Yes 5-Year EBITDA Growth Rate * Earnings per share.

If a stock is not undervalued by at least one of these measures, the odds are that it is not a good investment for a value investor. I have seen some companies slip through the cracks that I would have passed on using the valuation box. A quick test of mine is to use the DCF tab where a fair value will be displayed based on the company’s last twelve months of earnings and earnings growth over the past ten years. The Reverse DCF feature on the page is a way to see how fast earnings need to grow in order to justify the stock’s current price. IBM (IBM) is a stock that fits the mold of not passing the valuation box test, but passes the DCF test. Other stocks that do not pass the valuation box test, but might still be successful, are companies that are going through drastic changes. For example, the ethanol company, BioFuel Energy Corp (BIOF) is transforming into a real estate company and looks to possibly have more upside than the valuation box displays.

Moving further down the summary page, GuruFocus’ generated scores for Financial Strength and Profitability & Growth can be found along with a number of financial ratios compared with the industry and the company’s own history.

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Apple has strong ratings of 7/10 for Financial Strength and 8/10 for Profitability & Growth. Each one of the terms can be clicked to receive more information such as definitions and how the valuation or ratio is calculated. It would be difficult to find another site that has as much valuation information on one page in an easy to read format. Some of the unique features include the F-Score, Z-Score and M-Score. The F-Score was developed by Joseph Piotroski, and he discovered that companies with scores of 8 or 9 tended to outperform the S&P 500 and companies with scores of 0 or 1 underperformed. The binary scoring system is based on fundamental data. The Z-Score was developed by Edward Altman and is a forecaster of failure up to two years prior to distress. The M-Score was developed by Messod Beneish to help detect the risk of earnings manipulation.

Looking at the Profitability & Growth section, it can quickly be seen that Apple is outperforming most of its own historical measures and outperforming the industry in all measures. The red and yellow bars for EBITDA Growth and EPS Growth are indicating that Apple has slowed down in the measures as compared to its history. The slowdown makes sense since a 50 percent growth rate for the largest company in the United States is not sustainable.

Of course you will also be able to find common ratios such as P/E, P/B and P/S, as well as dividend information and more valuation metrics. All of the ratios and valuation metrics will include historic and industry comparisons. Versus its own history, Apple is trading at a relative bargain on all measurements except for PEG. PEG factors in growth and as seen in the Profitability & Growth section, growth has slowed compared to Apple’s own historical standards.

Proceeding down the page will reveal the latest trends in guru and insider trades.

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After having more guru buyers than sellers in the first quarter, the sellers slightly took the lead in the second quarter. The trades are listed below the graphical representation and distinguish between new positions and the adjustments of already existing positions. The list of trades shows that 4 gurus initiated new positions and 2 gurus completely sold out. Apple does not have much of a history for insider buying. Since the start of 2011, there have only been 2 reported insider buys. We focus more on insider buying because insiders sell for a number of reasons, but usually only buy for one reason: they think the stock is going higher.

Further down the page is the Peter Lynch Chart. It is based on what the stock price would be if trading at a P/E of 15 and is different than the Peter Lynch Value displayed in the valuation box at the top of the page. The chart can be used to see how correlated the stock’s price has been with its earnings and if the price has deviated from the earnings line. The chart for Apple shows that there have been three opportunities to buy the stock below its earnings line in the past 10 years. The stock has come back each time after dropping below its earnings line. The last opportunity to buy below the earnings line just ended in June.

The summary page also includes plenty of qualitative information such as business descriptions and links for articles from GuruFocus as well as articles from other sources such as Yahoo Finance. Many of the stocks will also have commentary available from the gurus that hold them. Commentary on Apple is available from David Rolfe, Meridian Funds, Diamond Hill Capital, Ron Baron, and David Einhorn. Also available on the page is a personalized checklist that can be used with your decision making on a stock. The checklist is customizable and is specific to the stock’s summary page that you are visiting. The checklist will be saved for each stock that it is used with so it can be reviewed at any time.

So now that we have reviewed all of the information on the summary page, what does it all mean? Using our example, Apple, the stock has a highly predictable business, strong financial strength and a high level of profitability and growth. The stock is outperforming in almost all areas relative to its own history and the industry. Where Apple is underperforming by its own historical standards is in earnings growth, although still at a high rate compared to the industry. According to the valuation box, it is fairly valued according to Projected FCF and Median P/S, but undervalued according to its Peter Lynch Value of $154.75. The Peter Lynch Value uses the 5-year EBITDA growth rate with a maximum of 25 percent. I think that level is too high according to how much the company can grow from here, although Apple Pay has plenty of potential since it will collect a small percentage of every transaction used with it. Trimming down the growth rate to 15-20 percent leads to a new Peter Lynch Value between $92.85 and $123.80. Putting all of this together, I would say that Apple is now fairly valued more upside than downside. The next buying opportunity might appear if the stock drops back below its Peter Lynch Earnings Line.

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All of this great information on the summary page is available for everyone at GuruFocus. The summary page is a great way to get a quick view of a stock to keep up with your holdings or to help make the decision whether to further investigate a company for an investment and should certainly be your first destination when researching a stock. In order to further investigate companies, there are a large number of valuable tools available with a Premium Membership for $349 per year. Some of the premium features include real-time guru trades, 10-year financials, a discount cash flow calculator, insider trades, and an interactive chart with fundamental features that are not available anywhere else.

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