The one-page stock analysis

Five minutes that will save you from investment disasters

Dear Investors,

I developed a one-page stock analysis sheet. I am going to use it to show you how quickly you can analyse investments with a framework.

Am I saying that one-page of analysis is all you need to do? Nope. But I do think that you can remove 80% of your mistakes with basic analysis.

Sincerely, Raj

The one-pager

Have you heard of Nvidia? They make microprocessors which can process data simultaneously. Originally these graphic processing units (GPU) were used to render computer graphics, but these days they are used for artificial intelligence and cryptocurrency mining as well.

Last week, Nvidia reported results and its stock price jumped 24% in one day. As a result, Nvidia briefly joined the trillion dollar club - referring to the select group of companies that have become worth a trillion dollars.

Is Nvidia overvalued? Let’s decide using this one-pager.

Nvidia financial analysis

Growth

  • Growth tells us how fast the various financial numbers are growing. Generally speaking higher growth in profit is good and higher growth in expenses is bad. Growth in capital expenditure needs to be put in context around whether the company is expanding or not.

  • Looking at the little sparkline graphs, you can see that growth has varied, but it seems to be heading downward.

  • Capital expenditure varies but seems to occur consistently.

Profitability

  • Profitability tells us if the company is operating profitably. The answer is yes, but…

  • Gross profit margin is reducing, while SG&A (expenses) are increasing. Unsurprisingly, the EBIT and Net Income margins have reduced.

  • Free cash flow varies, but seems to have an increasing trend. This is a positive sign.

Returns

  • Returns tell us how efficiently the company is operating. Higher is better.

  • Unfortunately, all of these seem to have a downward trend.

Yields

  • Yields can be thought of as similar to interest rates. Where higher yields are better.

  • We can see a clear decline in all the yield measures.

  • This tells us that the company is getting more expensive.

Multiples

  • Multiples are an indication of the expensiveness of the stock.

  • What we see are increasing multiples. This shows that the company is getting more expensive.

  • This is a warning sign because you do not want to overpay for an investment.

  • One of the most telling multiples is the price-to-sales multiple which has reached 38.3.

    • That multiple assumes that if the company paid out all the money it made from sales to investors, it would take 38 years to repay their investment.

    • In that time, no staff would be paid, no equipment would be bought or repaired and all the raw materials used would be obtained for free. Clearly an impossible scenario.

  • The price-to-free cash flow ratio shows the situation if all those expenses were incurred. Then it would take 194 years to repay the investors.

Conclusion

Without going into significant detail, we can already see that Nvidia’s:

  • Growth is reducing.

  • Profitability is declining.

  • Returns are falling.

  • Valuation is sky-high.

Key takeaway: The company is good but too highly priced in my opinion.

Therefore, I do not have to experience fear-of-missing-out (FOMO) if I don’t buy shares now.

There are approximately 65,000 stocks in the world. I am confident that I can find a different company which will be a good investment and at a lower valuation.

As you’ve seen, you can tell quite a lot from a simple framework. Most of these numbers are available for free online. So next time you’re about to buy a stock on a tip from your barber. Stop and do 5 minutes of analysis. It might save you from a bad investment decision.

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