April 2, 2012

Stock Review: AMWAY (6351)

In my previous article on stock selection criteria, I am using stock grading system as advocated by Infinite Wealth, which is basically based on fundamental analysis. According to Infinite Wealth grading system, a stock with grading of 9 stars and above is worthy of investment. A quick recap on the stock grading system is as follow:
  • Turnover
  • Net profit after tax (Net PAT)
  • Net profit margin (NPM)
  • Cashflow from operation (Cashflow Ops) 
  • Cash ratio (= Asset/Liabilities)
  • Average net dividend yield (Net DY)
  • Average ROE (ROE)
Today, I'm going to analyze on AMWAY (6351). I will not be covering too much on the business structure and backgrounds of AMWAY since these information are widely available in the Internet. The financial figures that you see in the tables before comes from EquitiesTracker.com, which is typically available with your stock trading account.

From the stock grading that we've done, it seems like AMWAY (6351) is a investment worthy stock, since it has fulfilled all my stock selection criteria. Even though AMWAY (6351) scores highly at 11 stars, it seems like the net profit after tax and net profit margin are shrinking year after year.

The stock grading system only tells you how to select which stock is investment grade, but it doesn't tell you when to buy or sell the stock. To find out what is buy/sell price, I normally use the past 5 years PER range and 52-week low price. I will buy a stock if the current price is the lower price of 52-week low or the average estimated buy price. I will sell a stock if the current price is higher than 52-week high or the average estimated sell price.

To determine the buy and sell price, we will need some historical PER data. I get all these information from the Dynaquest Stock Performance Guide. In this Stock Performance Guide, you will get the 5-year historical PER range as well as Dynaquest's EPS forecast for the next year. Based on the these information, I've calculated the estimanted buy/sell price and compare these prices with the 52-week low/high price from the EquitiesTracker web site. From the Price worksheet above, I've derived the suggested buy price is RM8 or below, and the suggested sell price is RM9.58 or higher.

My stock selection criteria and pricing methodology are not bullet proof and serves as a guidance to me. I welcome constructive comments and feedback on my review on AMWAY, as well as ideas on stock selection and pricing methodology.

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