How I Pick Great Companies for Stock Investing By Adam Khoo: tencent (china)

 

How I Pick Great Companies for Stock Investing By Adam Khoo: tencent (china)

https://www.youtube.com/watch?v=4wsBn4NFekU

There are 7 steps:

1.  Income statement: consistently increasing revenue (turn over), net profit (net income) and cash flow operation

2. Projected growth rate? access to Reuters and type the stock code: see beta?, share outstanding? (need this figure to calculate the intrinsic value), ROE? Financial ? - long term growth rate? high and worst case scenario?

3. Sustainable competitive advantage

- Tencent: a brand monopoly in china network effect - everyone's using their service; profit margin for the last five years: 54% compare to 39% the rest of industry. And the next profit margin for 5 years is 28% compared to 20% for the rest of industry. So it is got the highest profit margin among its comparative so that confirm the sustainable competitive advantage.

4. High return on equity - ROE: 30% - it is done.

5. Have conservative debt: use AAstock (financial web) - balance sheets: Current ratio (current assets/current liabilities): 181851/178874 = more than 1 it is safe - so it passes. Next, the debt to equity ratio: total liabilities/equity = pass

Next, Debt servicing ratio is the net interest expense how much they spend paying interest to the bank divided by the cash flow from operations: 2908000/120002000=2.4% <30% maximum. So, very low debt really safe company.

5. Calculating intrinsic value

 

After find out the intrinsic value is undervalued from fundamentals

6. The technical analysis recall.

 

 Why tencent is in the uptrend and then downtrend? because the China-Us trade war and recently the chinese government imposed some regulation on gaming - Kids are gaming and losing an eye sight so you are betting 7 games so there's a lot of short-term problems that has caused the share to correct in $0.10 but we can see these as temporary problems that are giving us a great buying opportunity bug. That is just author's opinion.

Look at the chart: 50 MA (blue line) is below 150 MA (green line). So it is a confirmed downtrend and the price is below MA so it is a confident downtrend as well. Then drawing a trend line: the price is making lower highs by making lower highs.==> never buy a downtrend because it get lower and lower so watch this and be waiting for the price reverse into an uptrend to higher highs and higher lows and ideally crossing above the 50 moving average. We start to enter some shares if the 50 MA crosses above the 150 MA confirm medium an uptrend, we could enter even more into the stock so good average in as it changes trend. It will eventually is a question of time but no one can predict the future of when it is going to happen.

So that is the analysis of a stock in Hong Kong. Enjoyed it