Quantitative + Qualitative Analysis

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I believe you used to have a guide on stock picking, but I can’t seem to find it anymore.

Do you have any resources/ or intend to create any resource on the above mentioned topics? How you go about computing the intrinsic value of stocks using discounted cash flows and the calculation of
price target?

I’m looking for a consistent way to perform quantitative analysis of Canadian equities for my own personal research in addition to STP. Ideally, an excel template that can be auto populated
based on most recent financial statement releases.

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Asked on April 26, 2023 2:47 pm
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Hey there. In terms of discounted cash flow analysis, I mostly use Stratosphere.io modelling tool. I used to have a spreadsheet, however getting to know Braden and the platform over there, I have found the tool exceptionally useful because as you said you need, it plugs all the basic data in for you. I am not sure if the modelling tool is available on the free version or if you have to pay for it. You could check it out.

As to how we do the modelling, that all comes down to experience and just getting a handle on understanding how a business functions. DCF analysis is really nothing other than predicting future cash flows. That is why I can have a much different price target than you on the exact same company.

I typically find most people who get into DCF analysis and calculating intrinsic value are a little to optimistic to start. This causes them to see upside in nearly every stock they are analyzing. Once you start to gain experience in running these calculations, you're going to find that identifying an undervalued stocks is actually a rarity.

There are also situations where one can become more confident in their decisions simply based on historical analysis. For example, Well Health is a company that is currently well on its way to profitability and should be consistently profitable in the future. However, there is absolutely no historical basis in terms of cash flows, so predicting those future cash flows becomes more speculative in nature, and thus fair value price targets are not all that reliable.

Compare this to something like Apple, which has a consistent history of generating cash flow, and it becomes easier to predict future cash flows.

Share buybacks/issuances, debt, capital expenditures, inventory (in some cases), etc. all have to be estimated in a proper DCF analysis. As to the accuracy of your predictions, that simply comes with time.

Check out Stratosphere's modelling tool, that should give you a pretty good head start.

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Posted by Dan Kent
Answered on April 27, 2023 11:30 am