Traditional analysts have new criteria for themes to compete with Rush

The bonus season is upon us – it’s time to tell the numbers if we still have viable careers. This is especially the daisy period for research analysts at the largest investment banks. They don’t need compensation statistics to see things stand out and their jobs are high.

In the Kovid-19 era, investment “themes” – cryptocurrency, electric vehicles and home-based consumer technology – were far more fundamental. Context: Shortly after Nasim Nicholas Taleb, the official voice on black swans, broke out on Twitter that Bitcoin had been seized by “rejecting Kovid sociopaths” and that he was leaving the trade, with crypto prices reaching an all-time high of $ 50,000. The compulsion of the herd surpasses any ingenious research. So what can be expected from the average equity analyst whose media influence is nowhere near that of Taliban.

In order to stay competitive in the ever-growing market, analysts in the heating and thematic sectors began to use non-traditional valuation metrics. In the past, equity analysts used price-to-book ratios to give value to affected firms, from earnings to prices on traditional sectors and sales from prices for growth stocks. These days, they need to be more creative.

See price-to-narrative ratios. China’s electric vehicle maker NIO Inc. and the food delivery app are examples of stocks that are attractive to Meetawan investment groups. Although it has sold just 80,000 cars, NIO is already a billion cap 93 billion big cap company. Meanwhile, the Metawan 7 has a market value of 337 billion, valued at 107 times 2022 revenues. Both MSCI Emerging Markets are among the top holdings of the Index and have become essentially owned stocks for mutual funds and ETFs in emerging markets.

To match that appeal with a touch of research, sales analysts set the average price target for the NIO at .0 65.07, 40% higher than their fair value by the end of 2020 and 9.9% better than the market price, according to data compilation Bloomberg. Similarly, Meetuan’s average price target, 54 analysts, is ashamed of just 7.7% of the current market price. Can these be justified by traditional metrics?

Here is an example of how alchemy works. In a January 28 report, Morgan Stanley valued the NIO at $ 80 per share, declaring that electric vehicle manufacturers were “on the verge of deep model change” from simply selling cars to earning high margins, recurring software and service revenue. Keyword. The value of the auto industry is measured by the number of cars sold, but if the EV manufacturer can be considered a software company, if it has too many rating modules, that auto manufacturer is worth too much. Morgan, on the other hand, values ​​Stanley NIO’s long-term automotive business by 30 times its revenue, while its software operations are worth 51.9 times its sales. As a result, the NIO’s activity component accounts for one-fifth of the company’s terminal market value, with only 2% of its sales.

There are other ways to make enormous values ​​more digestible: for decades by using discounted cash flow and estimating daily profits. For example, Diva Securities Group Inc. estimates NIO’s cash flow until 2040. The bank sees NIO’s revenue before interest and taxes at 213 billion yuan ($ 32.98 billion), 60 times higher than the 2025 figure by then. That valuation method gives a lot more upside than the usual forward price-to-earnings estimate. Diva has a street-high price target of street 100 for NIO.

Or how to use total component analysis to give value to new business ventures that are still ignited by cash? This is the analysts’ go-to method for the Maytuvan, with shares rallying 49% this year, thanks to the purchase of the Southbound from major land investors.

The market is buzzing with the fast-growing e-commerce grocery Meetoon Select, where people buy food and household items together at good prices. Chinese consumers, especially in small cities, began buying fresh food online during the epidemic, opening up a market of 3 1.3 trillion that was largely unused.

Meetuan Select was launched last July and does not have much track record to speak of. Still, analysts from HSBC Holdings PLC. Citigroup Inc. From Goldman Sachs Group Inc. Participated in overall component analysis to reflect market enthusiasm. Already, Mituwan has 20% of Mituwan Select accounts in HSBC’s fair value estimate, for which the bank has set a street-high target of HK $ 550. Meanwhile, 44% of the affordable value of parts at Goldman Sachs are “new programs”. With 50 purchases, four holds and a sale, sales analysts say the grocery e-commerce story is buying.

The life of an analyst can be tough. With market avash with record-high liquidity, anyone using basic analysis should undershoot prices that the market does not recognize. At the same time, analysts hate to avoid hot companies with skeptical views because they can reduce your access to management and some understanding of performance. So everyone weaves entertaining stories regardless of how realistic they are. Stories mesmerize customers for a while. But can you build a career?

Subscribe to it Mint Newsletters

* Enter a valid email

* Thank you for subscribing to our newsletter.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *