AeroGrow vs. Coke: Spider Graphs Analysis

I find it much easier to see and understand graphs and lines rather than a row of numbers next to each other. I have to admit that my investing techniques still need work. So in an effort to iron out some kinks, I will now implement a spider chart (Excel calls it a radar chart) when I analyze companies.

Here is an example. Note the difference between AeroGrow (AERO) (one of my many mistakes) and Coca Cola (KO).

See what I mean? There is a big difference between looking at notes and thinking about the business and actually receiving a visual representation.

Ratings and Metrics Explanation

The scale is from 0 - 5 where 0 is the worst and 5 is the best. Obviously, the bigger the area in the graph, the better.

A brief definition of the metrics used:

• Best - 5
• Good - 4
• Average - 3
• Below Average - 2
• Bad - 1
• Worst - 0

Under Valued: 5 is extremely undervalued and 0 is overvalued. KO has a fair value so it is 3 for average.

High Growth: 5 is high growth and 0 is no growth. I would say KO has an average to below average growth rate.

Low Risk: 5 is close to no risk and 0 is high risk of losing money. Risk could be in the form of one major customer, high debt, high inventory, unpredictable margins.

Well Managed: 5 is excellent company management with 0 being sleazy managers (Enron, Worldcom).

Good Financial Health: 5 is a company that generates excellent cash and a strong balance sheet. 0 is a company with huge debt, overly issuing stocks etc.

Strong Moat: 5 is an impentratable moat with 0 being nothing more than a trickle.

(I think there was a little confusion with the graphs by a couple of people. These are just my metrics. The whole point of the graph is to remind myself how I saw the company at that point in time. Just because it may be 90% undervalued, doesn’t make it a good investment. All aspects have to be considered and this is just a reminder, not an indicator.

So far, I only have 6 metrics but I may add more if I think they are necessary.

Also, the metrics are what you make it. Everyone has a different perception of risk, health, moat, etc. so the point is to hopefully bring up ideas which could help you in your own analysis.

Take everything I do and say with a grain of salt.)

Disclosure: No positions in stocks mentioned at time of writing.

Comments

[WebWriter:]

Could you post one of your samples as a xls somewhere? I think I could figure it out by would rather save the time. I think this is a great way to help visualize your analysis.

Of course, the key is to be correct in your analysis of each parameter, which is where most will make mistakes. But there is nothing like a good chart to help you see the big picture.

Thanks!
WebWriter

2008 Nov 26 10:02 AM

[Jae Jun:]

I'll keep a note for future analysis. It not difficult really and I don't know why it took me so long to think of it as I saw the spider graph every week or so.

2008 Nov 26 06:02 PM

[jdfugatini:]

Please expand on rating management and the strenght of the moat. NAIC uses Pre-tax and Post-tax profit margins and profit ROE to judge management quantitative way. I haven't the firts clue on judging the moat. Is this a % of new product sales to total base? Thanks in advance for the lesson.

2008 Nov 27 12:44 PM

[Jae Jun:]

To explain the moat would be a whole chapter in itself.
A best explanation would be to read Pat Dorsey's "The little book that builds wealth."

You can also read my book review at www.oldschoolvalue.com.../

2008 Nov 27 07:18 PM