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