The Applied Finance Group’s (AFG’s) valuation techniques help investors identify and take advantage of mispriced securities in the market. One way investors can identify over or undervalued stocks is by using AFG’s Intrinsic Value Chart, which displays a company’s intrinsic value relative to its trading range and helps identify entry/exit points.
This easy-to-read chart identifies how far a stock’s trading range deviates from its intrinsic value (target price assuming immediate decay), which helps you recognize potentially mispriced stocks and pursue long and short opportunities. AFG’s Intrinsic Value Chart also contains a company’s Value Score (ranked valuation attractiveness), Economic Margin Change (expected improvement of economic profitability), and Accuracy (how well AFG’s default valuation has tracked the company). AFG’s valuation framework estimates a company’s equity value by subtracting debt and other liabilities from the total enterprise value. The total enterprise value is estimated by discounting projected future cash flows, utilizing analyst consensus, Economic Margin methodology, and the Decay concept which addresses the perpetuity bias in the traditional DCF model.
The example we have provided is Joy Global Inc. (NASDAQ:JOYG) a company that currently looks overvalued according to AFG’s default valuation model. An important fact to note is that AFG has shown it tracks Joy Global Inc. well (high accuracy score of 94). Also, Joy Global has a current AFG Value Score of 24, meaning the company ranks in the bottom 24th percentile of companies in the AFG universe in valuation attractiveness. Companies AFG identifies as overvalued have proven through back-tests to be more likely to underperform than those companies with an attractive default AFG valuation rank.
AFG’s Intrinsic Value Chart:
• Identifies entry/exit points
• Shows how well AFG has tracked the company (accuracy)
• Displays the trading range of the company each year through time (blue bars)
• Displays the end of year closing price (dash on blue bar)
• Displays AFG’s default intrinsic value (red dotted line)
How to Read this chart:
• The Blue Bars represent the high and low trading range for a stock for each calendar year.
• The red dotted line represents Applied Finance Group’s (AFG’s) historical Intrinsic Value through time.
• When the red line (Intrinsic Value) is above the blue bars (trading range) the company looks to be undervalued.
• When the red line (Intrinsic Value) is below the blue bars (trading range) the company looks to be overvalued.
Below is an example of AFG’s Intrinsic Value Chart to provide a better understanding of what to look for when analyzing AFG’s Intrinsic Value Chart.
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