Hi all,
Just wanted an opinion on how important NAV is, relative to your investment strategy or guideline.
Philip Fisher mention that NAV gives a safety margin, that's it.
It does not have a bearing of how the stock will perform in the future.
A safety margin will not help if the company is in chaos.(the safety margin will get eroded and if the company does not get liquidated in the short term, that still means nothing)
He mooted that management is more important than NAV, and that goood management is what will bring value to the business.
I am contemplating this as I believe there is truth here.
If the company is STABLE and EARNING sufficiently, NAV is just a reference. I typically do not want to try any company that's a going concern to bother into NAV or NTA. Having load of CASH or PROPERTY (Valued up to date) are another matter which maybe potential for high dividend or get buyout i guess.
Read the Third Avenue Mutual Funds Letters. Marty Whitman is a NAV practitioner.
For me, in the order of P/E, Cash flow, NAV (PTB).
I think it really depends what company you are buying, and what are you buying it for.
If you are buying company for asset play, such as property counters, obviously it make sense to look at the NAV, RNAV, the cycle of property.
The assets of the company must be able to generate cashflow and have a low ammortisation rate to make sense to look at NAV as a important metric.
If you are looking at telcos, or yield plays, obviously, FCF is the foremost metric, if you look at starhub NAV, or SGX NAV, you will never see why people pay some much above NAV.
Also, you need to look what make up the bulk of NAV, if its cash, and the cash is supported by operations and not one off gain, maybe you got a gem, if you are looking at factories, you might not be able to liquid them. So the assets values need to be discounted. Also high receivables and inventories does not really mean much, unless it is in the commodity business, because we know there is a ready market for those, if you are making shirts, who knows if anyone wants to buy those shirts
when looking at asset plays, NAV very impt
when analyzing dividend stocks and growth stocks, nav doesn't really mean much to me
example of stocks that I own that have very low nav per share are starhub and challenger, for such plays I'm looking for cash flow and earnings.
if looking at reit, NAV would be quite important, would always feel safer to purchase reits when they are selling below book ^^
Thanks for all the replies.
Insightful as always.
Just wanted to understand how you guys look at NAV and beyond.
As I am still learning, I always take NAV as a guideline but realise that I can miss out alot of other good companies if I take it as a 1st screen.