Although Phil Town has his own technique in finding companies with meaning, I’ve just gone through all the major European and American indices and looked there for companies with meaning to me. Here is the list that I ended up with.
Let’s pick a sample company (Apple). I understand what Apple produces, I was, and I am an Apple-product user, plus I would like to own this company for more than 10 years.
Brand, secret, switching, and price are the moats of Apple. The Apple brand is one of the most valuable brands in the world, the secret they have is their operating system and various software and hardware exclusivities. Many professionals like musicians and video editors are stuck with Apple products because of their Logic Pro and Final Cut software is an example of switching moat, and as far as price, they are at their own league, they set their own threshold. For the next step, let’s enter it in stockrow.com and check the big five numbers of the company and their growth rates for more than 5 years.
www.stockrow.com“Revenue Growth” is located under Financials — Income — Annual — Revenue Growth“ROIC” is located under Financials — Metrics — Annual — ROIC“Book Value Per Share” is Located under Financials — Metrics — Annual — Book Value Per Share“EPS” is located under Financials — Growth — Annual — EPS“Free Cash Flow Growth” is located under Financials — Growth — Annual — Free Cash Flow Growth
We don’t need a spreadsheet software to see that Apple is all over the place, and it’s not a “wonderful company.” In any case, below, you see all the “big five numbers of Apple in my spreadsheet. Stockrow didn’t provide us with the “Book Value per Share” growth rate, so I needed to calculate myself. The spreadsheet function is the following: =(Present Value-Old Value)/Old Value
Make sure that, as shown, you start calculating a year after your initial year.
After I get the year-to-year growth rates, I then calculate the mean of 10 years, 5 years and 3 years.Here I added up 10 years and then I divided by 10 to find the 10-year average. The same goes for the rest.
Let’s now check the management of Apple.
Tim Cook the CEO of Apple — The image is taken from https://www.gq.com/story/apple-tim-cook-wants-your-iphone-sustainability
Below we see that Mr. Tim Cook received less total income than every other member of the management team.
The table is taken from — https://www.sec.gov/Archives/edgar/data/320193/000119312517380130/d400278ddef14a.htm#toc400278_21
At this point, I need to spend much more time to identify the “Big Audacious Goal” of Mr. Cook, but also to read about his opinions and future goals. A great tip is to read the ‘Letters to shareholders’ from the CEO of the company.
As far as the “Margin of Safety” section of the book, my minimum acceptable rate of return will be 15%, as it is recommended by the book rate.
To calculate the future or foreword EPS, I used the “future value” function in google spreadsheets (also available in MS Excel). The function looks like this:
=FV(10y EPS median, years in the future, current EPS with the minus symbol in front)
I took the current EPS from www.stockrow.com from the main page of Apple’s profile
For the 10y future stock price, I multiply the forward EPS to the current PE also from the main page of Apple’s profile.
For the current stock price, I use the “present value” function in google spreadsheets (also available in MS Excel). The function looks like this:
=PV(acceptable rate of returns, years from the future price, -future stock price)
Finally, I multiply the current stock value to 50% in order to see how much my stock needs to be priced in order for me to buy the stock today. $106 is the answer. Let’s check now the current market price:
$210 is our calculation and $243 it is trading right now. So, the price traded is close to our calculated price, and that means that we cannot buy this stock with a “margin of safety”. It’s not a bargain.