A specialist Australian equities manager has advised investors to take into account four key elements to value stocks in light of price fluctuations and complex company assessments.
The criteria recommended by Monash Investors to more accurately price shares are growth, insight, value and event – or, for short, GIVE.
In regard to growth, the manager looks for strong progression in sales, earnings and/or cash flow for shares it is interested in buying and holding.
The insight component consists of information about a company and how the market interprets this. Specifically, Monash is referring to how a stock may be misunderstood by the market and then it anticipates how the misconception will be resolved.
The value factor is the difference between the target price and the current price investors set for their returns.
Finally, Monash sees an event as a near-term catalyst for change.
“We value stocks on an absolute basis, versus adopting a relative approach, because we are targeting absolute returns,” Monash Investors co-portfolio manager Simon Shields said. “We do this by relying on recurring business situations or patterns of behaviour, which we have observed over our careers, that inform our forecasting.”
