As a Hawaii local, I'm interested in different investment ideas, but I'm even more-so interested in companies in Hawaii, some of which include Hawaiian Electric Industries, Inc. (HE), Cyanotech (CYAN), Matson (MATX), Hawaiian Holdings (HA), Hawaiian Telcom (HCOM), and Alexander & Baldwin Holdings, Inc. (ALEX).
Alexander & Baldwin Holdings, Inc., through its subsidiaries, develops and sells real estate properties. They've been involved in a lot of impactful real estate deals in Hawaii. Among these deals, include an announced $373 million deal to buy commercial real estate in Kailua on Oahu (not to be mistaken as Kailua Kona) and an announced sale of Maui Mall in Kahului totaling $330 million to help fund the $373 million acquisition of Kaneohe Ranch.
I don't own shares in this company, but I am continuing to grow curious of whether I could buy this company on the cheap. Therefore, I will use the price-earnings valuation method that is presented by Value Spreadsheet.
The Equation's Inputs
First, I took the average historical price-earnings multiple for five years from Morningstar. This came out to 80.9. Second, looking at Yahoo! Finance, the trailing twelve-month EPS (TTM) came in at 0.53. Third, looking at the expected growth rate according to Nasdaq.com is 52.22%.
No valuation is complete without incorporating the margin of safety principle from Benjamin Graham to account for the potential of error. Value Spreadsheet recommends using between 15% to 25% as the margin of safety. Generally, I err on the side of caution by using 25%. Therefore, we can arrive at a growth rate of 41.42% (the original expected growth rate of 52.22 multiplied by 0.75).
We calculate the one-year price target by taking the EPS multiplied by the calculated growth rate plus the whole to the power of five (as years) multiplied by the historical price-earnings multiple. Here are the numbers:
0.53 x 1.4142^5 x 80.9 = $242.57
Let's look at what the stock is worth today versus later down the line. To arrive at today's price valuation, let's consider a 9% discount rate, which is an approximation relative to the long-term historical return of the stock market as a whole over the last 100 years.
$242.54 / 1.09 = $222.51
Today, the stock according to this method is valued at $222.51. Keep in mind that no one valuation method is entirely on spot, and that each method gives you a rough estimate of the value. Therefore, if you know of other valuation methods that you prefer to use, I encourage you to use the methods you're comfortable with.
According to this calculation, the stock trades at a huge discount. I do encourage you to do your due diligence and investigative research in this stock before you initiate a position.