This week in our Globe and Mail article, we focused on growth picks for investors who are still keen on the US current market and would like to have exposure to the potential remaining steam in the US market.
We notice that most companies on this list rate low when it comes to “VALUE” but positive with “QUALITY”, (as can be soon on their scorecards), what does this mean? We will take Adobe (ADBE), an American multinational computer software company, as an example.
To get a better understanding to how we concluded that we will go to the “PEERS” tab. The factor exposure is a relative exposure comparing the company you are analyzing to 9 other peers.
A Quality exposure is highly dependent on return on capital, profits and return on equity the company is generating. In the image below, we can see that for most of the criteria used to evaluate if the stock is of high quality, ADBE comes in first place versus its 9 peers. Clearly ADBE, like most of the companies on our screen this week, is very profitable and is successfully covering its costs (given by an EPI greater than 1). In addition, the company operations are efficiently generating free cash flows which is vital for a company to continue growing and have the ability to take advantage of future opportunities. The greener the box is, the better.
On the other hand, a Value exposure is dependent on how overvalued/undervalued the stock is. This is inferred by a couple distinctive ratios: The Price-to-Intrinsic Value, Price-Earnings ratio, and the Future Growth Value ratio (FGV/MV). All those metrics point to an overvalued stock, with the stock trading at 47.9 times its earnings, the stock price is 4.37 times its intrinsic value, and the FGV is at a 78% premium. Also, the dividend yield is considered when evaluating the value of the stock. The darker the box, the worse it is.