Two days ago, I added SINA Corp to the model portfolio at Junto Investments and wrote an analysis and valuation of the company:
https://junto.investments/companies/sina-corp-analysis/
It’s a long read, so TL;DR: I perceive intrinsic value to be at least $10-15 per share higher than the current price per share based on conservative assumptions and so I “bought” this Monday at an average price of $38.80. Personally, I own stock in the company at an average price of about $7 higher.
If you decide to read it, let me know what you think and whether you agree/disagree on certain points.
Cheers, Oliver Sung
Didn’t read the paper but right off I have an issue with your price target. Instead of saying you see upside of $10-15, try putting that in percentage terms and see how it looks. “I perceive the intrinsic value to be at least 25.7% to 38.7% higher…” That’s a huge gap. When you’re modeling other potential stocks for your portfolio, how can you effectively compare them without an more precise upside/downside prediction?
Thank you for your two cents, Sweep the leg. I like your question.
If you read the paper, you will find that my estimate of intrinsic value is based on a range established by my conservative assumptions using different valuation methods. And due to the large uncertainties surrounding SINA’s prospects, that range is, as you pointed out, wider.
If the stock price was $50 today, which is at the lower end of that range, I wouldn’t buy since I would find no margin of safety in my own assumptions.
So to answer your last question: I compare potential stocks for my portfolio based on my understanding of the business and consequently my ability to predict its future cash flows. The better my understanding is, the higher my appraisal of intrinsic value (the lower the discount rate), and the narrower the range of values. And thus, I overweigh the stocks that meet these criteria the best while providing the greatest margin of safety from the lower range of that appraisal - in this case about 25%.
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There’s no such thing as precise intrinsic value and any attempt to value businesses with precision will yield values that are precisely inaccurate. So I really find using precise upside/downside prediction a foolish game belonging to sell-side analyst reports.
Ignoring the gap that stl mentioned. I think he is saying that you should use upside downside as a percent so that you can compare it relative to a persons investment so that it is comparable to other stocks. A company going up or down 5 bucks would be de minimis for a company like berkshire which is priced at 300k but would be huge for a company like ge which is priced at 10 bucks.
imo the best way to analyze sina is through weibo. It kind of reminds me of yahoo when it owned baba and some it’s shit websites along with the Japan stuff. Once you decide if you like weibo then you have to decide on whether to invest in weibo or sina which will be based on sina price relative to its book value when you liquidiate the weibo shares and other investments after tax and shut down the other segments.
with that said winners and losers are being decided right now in China. Baba and ten cent for instance have grown 30 percent while some companies have slowed down. Slow down or not, the weak are being culled. It’s a beautiful time in China.
So the old Peter Lynch philosophy of buying what you know. I like that. I guess my feedback would be to steer clear of companies where you are not confident enough to provide a more precise forecast. If you know SINA inside and out, you should have a target price, not range. If you don’t know them well enough to provide a price target, you probably shouldn’t be using them as an example. Then again, modeling names and finding intrinsic values is more of a value investing approach. If you want to be more of a growth manager, you don’t even need to provide price targets.
Maybe I should actually ready your paper and then provide feedback. I’ll try to do so today.
Thanks, Sweep the Leg. And you are right.
In the analysis, I actually provide a wider range based on valuation methods, but my conclusive assessment stated in this thread is based on the lower part of that wider range.
If the market was flush with value opportunity, I wouldn’t bother spending much time on uncertainties. But unfortunately, that’s not the case in these times.