Tuesday, 15 April 2014

Review of Target Price

As most readers in this blog will know, I set my own target price for every stocks that I own, and also set a time frame for the target price to be achieved.

My target price is derived from a very simple method, which use guesstimated EPS and target PE ratio. I do not know any other valuation methods and I think I should keep it simple first.

For property stocks, all analysts use RNAV (revalued net assets value) method to come to a fair value. However, I still use EPS & PE method.

Because of this, my target price can't be long term or more than 1 year, as it's hard to predict earnings far into the future.

It's been more than half a year since I'm setting target price. So it's necessary to check whether these target prices make any sense or not.

Out of the 8 stocks that I have, 3 of them has Mac14 as their deadline. 

Target Price Current Price Deadline
GTRONIC 2.96 3.58 Mac14
MATRIX 5.10 4.17 Mac14
TROP 1.94 1.58 Mac14

Gtronic has exceeded my target price by 20% but I decide to keep its shares as it still has room to grow and pays good dividend as well. 

Both Matrix & Tropicana's share price lag behind my target price. Coincidentally both have 22% room to grow and both recently announced positive news which are proposed bonus issue and surprise dividend respectively.

For the other 5 stocks which have a deadline of Sep14 or later, Inari has achieved the target 6 months earlier than expected.

Target Price Current Price Deadline
TAMBUN 2.10 1.94 Sep14
INARI 2.50 2.64 Sep14
LATITUD 4.96 2.66 Sep14
YOCB 1.30 1.23 Sep14
SCIENTEX 6.26 5.76 Oct14

Tambun, YOCB and Scientex's current share price are already very close to my target price even though there are still 5 months left to hit the target. This poses a question whether should I keep these shares or sell them to invest in others with better room to grow such as Latitude.

To maximize the investment return, I should sell and concentrate on stocks with better expected share price growth.

I've been struggling with this issue for quite some time. The main reason I don't sell yet is because I believe that all of them are still growing, and their target price will be revised upward in the future.

The second reason is because they give decent dividend and the third is to serve as a diversification.

Latitude still has a lot of upside potential. So I think I should collect more on its price weakness.

There is no doubt that Latitude will produce a wonderful financial results in its FY14 that ends in June14. However, as it is in a cyclical business, how long can this performance sustain?

I don't normally read a lot of financial news, but what I get is that US economy is still in the recovering process, isn't it?

In conclusion, I will continue to use this simple target price method to monitor my stock market investment, until I find another better way to do it.


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