Rule #1 Companies to Study

[mvdan]

Originally Posted by SIDUG

I've calulated the Big Five for CTSH and they seem to be excellent. Below is the growth rate of the Big Five. Sorry about the spacing. No matter how I set it right once I previewed it became all messed up.

9 YR 7 YR 5 YR 3 YR
1) ROIC(AVG) 23 22 22 23
2) EQUITY growth % 53 56 55 48
3) EPS growth % 50 49 52 49
4) SALES growth % 49 48 56 54
5) FCF growth % 37 35 36 26
6) DEBT / FCF 1.9 2.91.8 1.9

Furthermore, based on quite conservative figures:
Growth rate= 30.19%
Future P/E = 39.85
M.O.S. = $79.23
Today's sticker price = $30.00

Dose anybody have any idea why their price has been beaten down so drastically? Are there any bad news which I could not find? Otherwise when the tools say go it's time to load up.
cheers

Hello
This may be one reason:

CTSH: Still Wary About Cognizant After Strong Earnings Report | Stock Market Beat
2/18/2008
"For 2008, Cognizant is guiding for 17,000 to 20,000 additional net recruits, which amounts to about 33% growth in headcount.

Meanwhile, the company is projecting revenue gains of “at least 38%.” While there is certainly room to increase utilization from the current 56%, there is a limit to how much can be done. What’s more, with the increased productivity I would normally expect an increase in operating profit margins. Yet the company is guiding to the same 19-20% operating margin range that they always have, and that is “assuming no material appreciation in the Rupee” versus the dollar. To me, that implies that the higher productivity is being offset by higher wages for employees.

There’s also room for doubt around whether performance can be sustained in the financial and retail sectors, which both grew about 50% in 2007.

To make things worse, Cognizant has benefited from tax breaks in India, which are set to expire in March 2009. The tax rate is expected to rise from 16.5% this year to about 25% in 2009 as a result. Over time, it is likely to gradually creep toward the statutory 33.66% rate in India. But for 2009 the drag will be significant, keeping the EPS growth rate well below the growth in revenue.

I frequently gauge the quality of reported earnings by measuring the accrual ratio, or the change in operating assets as a percentage of average net operating assets. As a measure of the percentage of earnings explained by accounting choices rather than cash flow, ideally the ratio should hover around zero. After several quarters of improvement or stabilization, Cognizant’s earnings quality deteriorated significantly."

Regards
mvdan

[npg]

Thats a very good explanation of the hurdles the company faces in this increasingly competitive environment.

One cannot go with past growth rates here. I'd substantially reduce the expected growth to a figure that is capped at 20%.

[dennyw]

Hello. I am also new to this site and recently read Rule 1. Then went on to create spreadsheets, quiz family and friends on items they buy and love (especially ones you know you pay a premium for and do so willingly), and run simulaitons. I have not jumped in with both feet, yet. What do you think of Garmin (grmn)? My wife suggested it before I read about it in the book, because we have one, love it and are considering a second unit.

The numbers look good very good. The moat is the real debate. Has their market and accuracy advantage been eroded by Tom-Tom and Cell phone based GPS OR is their ease of use, larger than cell phone screen, adhoc finder (restaurants, gas, hotels, ...), new low cost models (Nuvi 200), link to Google and anticipated cell device enough to demand a premium?

That is the question we're wrestling with.

[Gunnski]

Nice Due Diligence. Have you factored in the current market conditions/trends? Why would you want to be rowing upstream?

Also, check the prior Threads/Post re: GRMN on the this Board. It has been discussed a ton.

[dennyw]

Thank you. I'm new to posts like this and it took me a bit to navigate the search items. Wow. Many people through the first half of the year were very negative about GRMN and now is definitely not the right time to buy.

However, the last few posts were still split and I agree with the last series that GRMN will still be around in 10 and 20 years. So, I'm slightly positive and think good news will be coming.

As a side question.....

Our company recently converted to running by Economic Profit or a version of SVA. My model uses Phil's calculation to find stock price and MOS then compares these results to the Value at Stake / EP calculations (discounted for my 15% desired return). In both of these cases, GRMN looks very attractive at $50. The EP calculation yields a slightly higher stock price and I've seen it correlate EXTREMELY well to our fortune 500 company's stock price.

Then I use the little blue book and compare the company to historic PE and industery PE, again GRMN looks very good.

Finally, from a technical trading perspective, if the slow stochastic goes below 20 and reverts, there is a much stronger pressure for upward movement.

Following Phil's tools in combination with the sloe stoch to go under 20 and move upwards would have indicated buying GRMN at $42. Even with its sideways movement, you'd still be in at ~$51 now. Not a bad gain for less than 1 month.

Have you seen this type of combination (Phil + EP + little blue book)? If so, have you seen positive or negative results from such analysis?

[ozenwealth]

I really like grmn.. they are a great company and on sale. This is from my research with investools. They also have some industry support so they could be good to go. looks like they had a good spike in price recently so wait until it dips down a little or the 30 Day Moving Av. catches up.
Have fun.

Originally Posted by dennyw

Hello. I am also new to this site and recently read Rule 1. Then went on to create spreadsheets, quiz family and friends on items they buy and love (especially ones you know you pay a premium for and do so willingly), and run simulaitons. I have not jumped in with both feet, yet. What do you think of Garmin (grmn)? My wife suggested it before I read about it in the book, because we have one, love it and are considering a second unit.

The numbers look good very good. The moat is the real debate. Has their market and accuracy advantage been eroded by Tom-Tom and Cell phone based GPS OR is their ease of use, larger than cell phone screen, adhoc finder (restaurants, gas, hotels, ...), new low cost models (Nuvi 200), link to Google and anticipated cell device enough to demand a premium?

That is the question we're wrestling with.

[tombrown1]

I also like them technically right now. Thinking about getting in myself.

[MJActon2]

WRT GRMN...

The numbers do look decent in terms of MOS price. I calculate a MOS price between $25 and $135 depending how conservative I apply the principles. My best analysis still shows a $35 MOS price. With the current price at $44.50, it is a bit risky.

However, we must also check the 3 technical indicators so we buy just before the big guys (institutional investors). MACD, Stochastic and MA. I also check the Money Flow Index.

Right now, they are not looking good enough.

See: Barchart.com - Advanced Technical Opinion - GRMN GARMIN LTD NASDAQ

and: Barchart.com - Charts - GRMN GARMIN LTD NASDAQ

Soon, perhaps will be a good time to buy.

As Ben Graham says, if it is not clear that this is a great deal, then move on (or wait).