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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Earnings Per Share Vs Net Asset Per Share

Earnings Per Share Vs Net Asset Per Share

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ADP

ADP
Manager - Equity Analytics
Manager - Equity Analytics
If there are two stocks A and B in the same sector and company A has a EPS of 30 and a Net Asset  Per Share of 175 trade price is 190, and Company B has a EPS of 20 and a Net Asset Per Share of 480 and trades at 240.

Which company would you buy and why?

Lalindra

Lalindra
Manager - Equity Analytics
Manager - Equity Analytics
Hypothetically I would go for share B because the PBV is more attractive than share A and any gain from the current trading price to NAVPS is a profit. That's on short term.
However on a long term, since both companies are in the same sector I would check the quarterly results of both companies at least 4 quarters back and give more vantage to PER before deciding.

worthiness


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
I prefer with company A which depicts low PE ratio though NAV is lower than current trading price. It is true that company B's trading price is well below its net assets value that many argue it is undervalued. Considering the nature of business & on going situation may change the choice.

kalanaym

kalanaym
Senior Equity Analytic
Senior Equity Analytic
If there is no any additional information available, since both shares are good, I would buy them allocating funds 50, 50 to both shares.

Sstar

Sstar
Vice President - Equity Analytics
Vice President - Equity Analytics
I will go for the higher EPS company. Higher NAV company may have non performing assets whereas higher EPS company may be utilizing the assets better than the higher NAV Company. After all Market vise, stocks are trading around 1.5 BV and 10X PER? Accordingly, Rs 1/= of NAV will have only Rs 1.50 effect on share price whereas Rs 1/= increase in Earning will have Rs 10/= impact on the share price.

As a shareholder, we are more interested in earnings, dividends and capital appreciation. Higher NAV company should give higher return if assets are better utilized. In your case higher NAV company seems to be inefficient organization. Revaluation of assets and resultant reevaluation reserves cannot be distributed whereas as profits can be distribued giving better capital appreciation to shareholders.

You may have to look at other qualitative assessment factors about the company before making the final decision. (Eg Management, goodwill etc). This way we could determine whether the high NAV company has the potential to utilize its assets better and make more ROA. If so taking a bet on high NAV company may not be a bad idea cause it has better future opportunities.

stevenapple


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@Sstar wrote:I will go for the higher EPS company. Higher NAV company may have non performing assets whereas higher EPS company may be utilizing the assets better than the higher NAV Company. After all Market vise, stocks are trading around 1.5 BV and 10X PER? Accordingly, Rs 1/= of NAV will have only Rs 1.50 effect on share price whereas Rs 1/= increase in Earning will have Rs 10/= impact on the share price.

As a shareholder, we are more interested in earnings, dividends and capital appreciation. Higher NAV company should give higher return if assets are better utilized. In your case higher NAV company seems to be inefficient organization. Revaluation of assets and resultant reevaluation reserves cannot be distributed whereas as profits can be distribued giving better capital appreciation to shareholders.

You may have to look at other qualitative assessment factors about the company before making the final decision. (Eg Management, goodwill etc). This way we could determine whether the high NAV company has the potential to utilize its assets better and make more ROA. If so taking a bet on high NAV company may not be a bad idea cause it has better future opportunities.

Good one Sstar.True there are some other factors to factor in. Such as possible management change would propell the gowth of B company exponentially. Possiible divestment of non performing asset will improve its ratios.

ADP

ADP
Manager - Equity Analytics
Manager - Equity Analytics
Thank you all for your thoughts.

What I think is NAV should be given more consideration if sale of a stake  of the company or liquidation comes into play.

But EPS or PER is more relevant when it comes into pricing the stock. However the actual dividend payout generally is not be equal to EPS. So shouldn't the actual dividend payout of the company be given consideration.

Lalindra

Lalindra
Manager - Equity Analytics
Manager - Equity Analytics
Agreed ADP in case of higher EPS the dividend payout could be higher. Also a share with higher NAVPS could be a company with enhanced reserves which could declare a bonus issue. It works both ways. Essentially ROE and ROA if available should be other important criteria which should be considered when taking investment decisions.

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
NAV mainly based on assets valuation

Accountants can manipulate NAV as in case of SIRA

Lalindra

Lalindra
Manager - Equity Analytics
Manager - Equity Analytics
@D.G.Dayaratne wrote:NAV mainly based on assets valuation

Accountants can manipulate NAV as in case of SIRA

That's why Return on Net Assets becomes an essential criteria.

ADP

ADP
Manager - Equity Analytics
Manager - Equity Analytics
Is there a source where I can get the following information on any company on CSE for the last five years? ( know CSE has individual qurter results but that's a lot of work to collect all the data.)

EPS
NAPS
PER
Public float (%)
Annual Dividend payout
Issued number of shares
Revenue

I don't know why there isn't some place where this information is available. If there isn't such a place maybe we should start one.

bandulawee


Manager - Equity Analytics
Manager - Equity Analytics
The best place I can suggest is cse.lk. If you subscribe you can get latest company information for all listed companies and you may be able to compute all ratios and updated on a worksheet

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