Screening for Ideas – Quantitative Analysis
Sionna’s Intrinsic Value Model (IVM) is an efficient tool to whittle the stock universe down to high-potential companies requiring further qualitative analysis.
The IVM calculates a mathematical estimation of intrinsic value for each company’s stock. Inputs to the IVM’s calculations include:
- Book value: reveals mispricing, in relative and absolute terms
- Historical ROE: reveals a company’s earnings-machine capability over a 10-year history
- Relative P/E ratio: reveals cost of the stock per earnings, relative to the index
We compare our IVM calculation of intrinsic value to a stock’s current price to see if there is a significant discount.
Although the IVM is an effective tool, we do not depend on it exclusively. We are resourceful in how we generate ideas. We like to cast a wide net and look for stocks that are overlooked by others.
IVM as a Monitoring Tool
The IVM also enables us to get a quick read on the impact of dramatic market shifts on stocks we are holding or would like to hold. By running the stock universe through the IVM, we can:
- Get an immediate handle on valuation shifts that may require further investigation
- Identify stocks that may have suddenly entered our buy/sell zones