Gosh...it really does pay to look at all aspects of the road, doesn't it !
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Guru Mark from Craig’s points out that FPH, PEB and SKO were the three worst performing stocks in the NZX50 during March quarter.
FPH in good company
My opinion - First quarter of 2022 worldwide has seen just the very beginning of a reckoning process where high and no PE stocks have started to be reassessed. Plenty more highway to travel on that journey...
Is there a broken record playing in the background? once the groove gets too big in those things its best to use them as a Frisbee.
Media says AIR share price sank to 2 year low this week.
FPH saw a 2 year low as well
What a weird world we live in ....spooky
FPH share price combines a high P/E ratio with earnings that rely on high profit margins.... profit margin almost at record highs Not always a good place to be.
Can recent profit margins be sustained - indefinitely - to justify the high PE.
Question I'm pondering as I update my DCF valuation
Currently profit margin is in mid 20's. Not that many years ago it was in mid teens. Currently quite a lot above average over the last 10 years
Variances in profit margin makes a big difference to DCF outcome ..... so can high margins be sustained forever?
Good question ...
I guess high margins will stay high if demand stays up and the competition does not manage to catch up.
Normally though high margins are attracting competitors like dung attracts flies.
On the other hand ... medical supplies are a quite special game - easy to protect your margins with IPR's, so I guess it is everybody's best guess.
Good news however re demand ... even if Covid goes away (which is not a given) - as long as people exercise less and eat more bad food they will need more breathing support on the long road to the grave.
Margins are on the way up as revenues rise thus reducing the effect of fixed costs . Thats the biggest reason for NP margin were at record high of 26.6% last year mainly due to record revenues of $ 1.97 B ie UP 56% helping NP to $ 524 Mil UP 82% .
As long as they can grow revenues NP margins will be ok though will come under some INFLATION pressures .
Also we have seen from last 6 months results that growth in consumables results in better margins vs growth in hardware . After installing lots of new hardware recently now the main emphasis ahead is in its regular usage beyond just covid needs ...that should also help margins by more growth in consumables vs hardware
FPH is not a ordinary company as it has reached a iconic status on NZX with more then 14% weightage in index thus resulting in its own advantages to SP
Just like AIR ...FPH also has some sentiments and technicals associated with its SP which has been resulting in much inflated multiples in the recent past ie 2013 onwards ...more it grows in stature ...more extra multiples gets incorporated in its SP .
Your DCF value will not be attaching any such advantage of FPH and investor sentiments mainly institutions who always end up paying some premium for Quality , track record , liquidity and longer term aspect ...unlike retail investors who treat balance sheets on par value of all listed companies ..eg Retail investor will not distinguish between WHS / HGH / OCA / FPH ...they will just see it from mathematical angle ...while institutions will attach much higher weightage to FPH quality company vis a vis others .
So to get real market savvy DCF of each company we need to incorporate some premium / discounts for company quality / status too
Updated the ol DCF using the 2022 sales as the new base and using more realistic sales growth assumptions. The chart shows what I projected previously and what I am projecting now
The new DCF value is $16.84 ..... and alokdhir i've essentially listened to you and built in a pretty big premium by using a 8% discount rate. (at 10% discount the DCF value is $11.74)
Oh well, filled in the time between races and I know nobody will take this on board as its a load of the proverbial.