In this Development Team update we want to introduce a brand new feature and improvements to other features to help you invest Smarter, Faster, and Easier!
Full Video – 4 mins
Note: For iOS, do double-tap on the video to zoom in if it’s appears small.
1. Peers – New Feature Introduction
“Who are the competitors of Apple or Hup Seng?” Now you can! We have released a new “Peers” section in the overview and in the revolving menu. This allows you to compare your selected company with its peers. Using the “Peers” feature, you can filter by various data such as Gross Profit Margins, Return on Equity, and more!
These peers are determined using GICS classification mixed with our own proprietary algorithm. This feature is still in BETA stage, so don’t be alarmed if you see a company that isn’t a very relevant competitor! We’re working to improve further and are excited to upgrade it soon!
[Video to jump straight to Peers introduction]
2. Intrinsic Value (IV) Line – New Valuation Methods, Stability Indicator, and Auto-selection
[Video to skip to IV Line update]
New valuation methods
To help users determine the intrinsic value of a company, we are introducing two new valuation models – Discounted Future Earnings (DFE) and Discounted Future Cash Flow (DCF) – to our previous “Growth” valuation that uses the Price/Earnings to Growth (PEG) model. The details of the models are found at the end of the post, but it will take you about 3 minutes more to read!
If you just want to know when to use which model, the “too long; didn’t read” (TL;DR) version is this:
- DFE and PEG models are for high growth companies with unstable cash flow.
- DCF model is for companies with stable cash flow.
To help you in calculating the DFE and DCF models, we have also automatically provided the respective 10-year local government bond rates as the default risk-free rate of return. So no more manually searching for these rates!
For these models to be reliable, they require a relatively stable net income or cash flows in the past 3 years to be able to project these values into the future. As such, we included a “Stable” indicator under the “Intrinsic Details” section to help you know whether the underlying data have not been too volatile. Still unclear what this means? In layman terms, it means the past data did not go up-down-up-down like mad.
Auto-Selection of Valuation Model
At this point, I’m like “huh, so much information.. can you just tell me what to use?” So if you’re just like me.. this is where my favourite part of the update comes in! Our team have thought of this awesome little “crown” indicator to save the day and make your life much simpler!
After analysing the company, calculating the intrinsic value using all our valuation models, and finally checking for stability, we simply highlight which one of the valuation models is most suitable.
3. Screener – Grouping of Screening Criteria
As requested by some users, we are grouping the various criteria in categories to ease the understanding of our growing list of screening criteria. Hope this minor tweak helps others as well!
[Video to skip to Screener update]
That’s all for now folks ~~
Well, that’s all the updates I have for you now from the Development Team! Really need to thank these folks for working 24/7 and all our awesome team members for coming up with great solutions to the feedback from our users!
We have an exciting pipeline of improvements to come! Wishing you all the best with your investing journey to achieve your financial success!
– The WealthPark Development Team
WealthPark Valuation Models [3-Min Read]
Discounted Future Earnings (DFE) Model
The DFE valuation model seeks to determine the current worth of a company based on its future streams of profit, a specified risk-free rate of return, and the growth rate of net income after adjusting for one-off items.
The reason why net income is adjusted for one-off items is to capture the growth of the company’s core business.
DFE is suitable for high growth or capital intensive companies where the free cash flow is unstable. However, one key disadvantage of using DFE is that it uses accounting profits instead of the actual cash flow.
Discounted Future Cash Flow (DCF) Model
The DCF valuation model seeks to determine the current worth of a company based on its future streams of free cash flow (FCF), a specified risk-free rate of return, and the FCF growth rate.
DCF is usually suitable for larger companies that have stable growth and do not require major capital expenditures. Therefore, DCF is less suitable for high growth companies or capital intensive companies where their free cash flow cannot be accurately determined.
Also, for both DFE and DCF as it is not practical to assume the business will last forever. As such, the company’s intrinsic value is based on a 10 year model with the following assumptions:
- First 5 years at its stipulated growth rate.
- Next 5 years at zero growth as terminal value.
Price/Earnings to Growth (PEG)
The PEG valuation model seeks to determine the current worth of a company based on its Price/Earning (PE) ratio and growth rate. Developed by Mario Farina and popularized by Peter Lynch, the P/E ratio of any company that’s fairly priced will equal its annual growth rate This means that a company is at fair value is when the PEG ratio is equal to 1.
Our PEG model multiplies a company’s normalized earnings per diluted weighted average shares outstanding (EPS) by its EPS compounded annual growth rate (CAGR). Normalised earnings are used to adjust for one-off items which are not the company’s recurring core operations (eg. gain or losses from the sale of investments and assets and other items).
Diluted weighted average shares outstanding is used to adjust for potential share dilutions. Both adjustments are to provide for a more conservative valuation.
EPS CAGR is measured over 1, 3 and 5 years with heavier weights assigned to earlier years to provide sensitivity to more recent year’s growth. The weights are 56%, 33% and 11% respectively with a maximum CAGR growth limit of 30%.
Company A with an EPS of $0.40 and earnings CAGR of 25% will arrive at the intrinsic value of ($0.40 x 25) $10.00. With a trading price at $7.50, the MOS will be 1 – ( 7.50 / 10.00 ) or +25%.
Company B with an EPS of $0.40 and earnings CAGR of 40% will arrive at the intrinsic value of ($0.40 x 30) $12.00. The maximum CAGR growth rate of 30% is set as a safety net to avoid risk from extremely high valuations due to unsustainable growth rates.