Stock Valuation: Lenovo Group Ltd (992)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
LENOVO GROUP LTD Hong Kong/
HKSE
Technology – Computer Hardware – Computer Systems HKD5.72
@ 29 Sep 2018
COMPANY PROFILE Lenovo Group Ltd is engaged in providing consumer, commercial, and enterprise technology. The portfolio of the products include PCs, workstations, servers, storage, smart TVs and a family of mobile products like smartphones tablets and apps.

Lenovo Group is a personal technology company that predominantly produces hardware, with business operations spanning more than 160 countries. The company currently operates with four business units: the PC and smart device business group, selling PCs laptops and tablets; the mobile business group, selling smartphones; the data center business group, offering storage, software, and system integrating services; and Lenovo Capital and Incubator Group, which was launched in April 2016. Lenovo is the number-one supplier of PCs in the world.

Stock Code 992
Valuation Analysis Below

Lenovo Group Price to EBIT

The Price Earnings (PE) Ratio is the most frequently used valuation indicator for a stock. However, there are times when this ratio cannot be used e.g. when the company reports a loss or profit is so minimal that it results in an abnormally high PE Ratio. Or Net Profit After Tax may be volatile and it is better to use Earnings Before Interest and Tax (EBIT) to value the company. We use the PE Band or Price/EBIT Band to show whether a stock is overvalued or undervalued based on its historical valuation.
At the price of HKD5.72 as at 29 Sep 2018, Lenovo Group Ltd is trading at a Price to EBIT Ratio of 13.6 times last 12 months earnings.  This is a 3.7% premium to its current fair Price to EBIT Ratio of 13.1 times. (Price based on the fair Price to EBIT Ratio of the company is indicated by the red line.)
Is this stock undervalued or overvalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Company description, historical financial statements data and price data are from gurufocus.com or moneycontrol.com. Estimates are from marketscreener.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

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