Sara, a 50-year-old working professional, was in a car accident. She suffered some serious injuries and submitted a claim for permanent partial disability benefits with her insurance company. Her personal physician had already provided detailed documentation. But her insurance company requested her to attend an examination with another doctor, provided by them. This doctor, they said, is an "insurance doctor." Now, this was something new to Sara. But is it a new concept? Let us find out. Who Is an Insurance Doctor? Insurance doctors play a critical role in the insurance sector, which is quite underrated and misunderstood. Most of us assume that they actually replace the role of our treating physicians, but that is not the case. Our physicians treat us in case of any mishap, but they do not assess or evaluate our level of injury or disability. But then, who actually does it? This work is done by Insurance doctors, which, in turn, impacts or affects our insurance benefits. Th...
Unlock the potential of undervalued stocks:
Do you wish that you may stumble upon a stock whose market price is so low that you can easily afford to buy a huge lot of it, with a strong conviction that the stock is about to perform tremendously well in the coming years? It would surely be a dream come true because, with a very low investment for a long term, you are about to get a very high return.
Well, it is not a dream at all. There are a few parameters or metrics that can help you identify such stocks for long-term investing, which often remain hidden and unrecognized.
Parameters for identification:
1. Price Earning (P/E) ratio - This ratio is highly favored by investors since it points out how much price the market is willing to pay for the current earning levels of the stock. This ratio will be at a very low level for undervalued stocks. Its formula is:
P/E ratio = Market price per share/ Earnings per share
2. Price-earnings to Growth (PEG) ratio - PEG indicates whether a stock is over or undervalued. An undervalued stock will have a very low PEG. However, if the PEG is low but the growth rate of the Earnings Per Share (EPS) is high, then the company holds strong positive potential for the future. Typically, a PEG below one will be considered an undervalued stock. Its formula is :
PEG = (P/E ratio) / (Growth rate of EPS)
3. Price to Book Value - It compares the market price and book value of a stock to understand how much an investor is willing to pay for each dollar of the company's net value. In case of liquidation, the shareholders will receive this book value against their claims. An undervalued stock will have a very low P/B ratio.
P/B ratio - Market price per share/ Book Value per share
4. Return on Equity (ROE) - This measures how efficiently the company can use the shareholder fund, indicating how much profit it is earning. Compare the ROE of the company with the industry to identify an undervalued stock since its ROE will be consistently rising or stable over the years, as compared to the industry ROE.
ROE = (Net Income/ Shareholders Equity) x 100
5. Debt to Equity Ratio - This ratio compares debt funds to own funds. Thus, if the ratio is very high, it means the burden of debt is high. Again, a very low ratio will mean equity financing is more. Both cases indicate lack of balance in financing, which is not good for the company's future. Compare this parameter with the peer companies to assess whether the business has good future potential. Its formula is:
D/E ratio = Debt / Equity
Conclusion:
The above metrics are very strong indicators to suggest whether you should invest in them or not, but they are not an exhaustive list. However, simply relying on numbers is not enough. Study the business and assess its sustainability levels and the background of promoters and competitors in the industry for better knowledge. Once you are convinced that your choice is perfect, save funds and invest and remain invested with patience to reap the benefits of your informed investment.
More reading :
Comments
Post a Comment