TSLA Shows Decent Quality of Earnings

Tesla creates a lot of polarization.  It's like the industrial equivalent of our current political state.

I find that the main narrative is vitriolic in nature.  The people in the love-camp don't have a tonne to write about because Tesla's financial and operating results aren't meeting expectations, it's difficult to argue back.

I'm going to offer this item of information to the debate.  It's a quality of earnings I ran on the large cap automotive and automotive aftermarket.

TSLA's are good.  Not great, but good and they are the highest, along with two other firms in the group, which further impresses. 

The quality of earnings matter.  They tell us whether what's being presented can be trusted or not.


TSLA got a 6 out of 9, compared to a group average of less than 4.

Two Undervalued Major Telecom Stocks

As the graph indicates, CHU and NTT are trading below value.

UPS Margin of Safety of 93%

According this Ohlson Clean Surplus valuation model, UPS is under-valued. Its "theoretical" price is $199 (why the quotes? because it's ridiculous to suppose that a model could really give you the true value of a stock, but it can be a useful guideline, ball park or an indication of a margin of safety).

CHRW is also trading with a margin of safety of 43%.

THREE STOCKS WITH A VALUE GREATER THAN PRICE ACCORDING TO MODEL

An analysis of this 30 stock portfolio (large cap, medical technology, medical specialities) shows three companies with a value greater than price: SSMXF, WAT and HOCPY.

The valuation model is the Ohlson Clean Surplus.

ABT and IDXX Score 7 Out of 9 for Quality

GlaxoSmithKline Scores High in Quality

I created a portfolio of the top pharmaceutical companies trading in the US and ran a quality of earnings analysis on them.  With the highest possible score being nine, GSK scored the best with seven.

Here are the results:

Quality of Earnings - Major Pharmaceuticals

Here's the balance of the companies in the portfolio.  We can see that AZN was the worst at two.

Quality of Earnings - Major Pharmaceuticals 2

Just for laughs, lets see how GSK and AZN have performed from a price perspective.

Interestingly, AZN has been outperforming GSK. It'll be interesting to say if this trend will continue or if it will, more correctly I believe, reverse.

We've Got a Winner

It's IPG.

Income 

Only three of the six stocks have a dividend: NLSN, JCDXF and IPG, and they all look quite good.  Over the past three years, each company has grown their dividend.

Let's look at the measures, the ranks and the final ranking in this category.  The measures are dividend yield, 3 year dividend per share CAGR and 1 year dividend per share growth.

	Dividend Yield	D/S 3 year CAGR	1 year D/S growth	Sum	Final Rank
JCDXF	2% 4	3% 4	8% 5	13	4
NLSN	6% 6	5% 5	5% 4	15	5
IPG	4% 5	12% 6	17% 6	17	6

IPG has some very nice dividend results.

Value

The value metrics are:

• price to book
• price to sales
• price to earnings (if the company has negative earnings they get a rank of zero)
• enterprise value to EBITDA.

	P/B	P/S	P/E	EV/EBITDA	Sum	Final Rank
TTD	.21 1	11.1 1	103 2	43 1	5	1
RAMP	.03 5	8.1 2	173 1	16 2	10	2
NLSN	.03 4	1.3 4	negative 0	9 5	13	3
JCDXF	.02 6	1.6 3	23 3	13 3	15	5
IPG	.04 3	.8 5	13 4	9 4	16	6
GRPN	.06 2	.7 6	negative 0	7 6	14	4

All of the companies in the group have what would generally be considered good P/B ratios except for TTD.  The same can be said for P/S but you have to exclude RAMP as well as TTD.  IPG PE ratio is good, JCDXF is acceptable and TTD and RAMP is very expensive.  From an EV/EBITDA perspective, GRPN, IPG and NLSN are attractive.  JCDXF is about average, RAMP is becoming more expensive and TTD is very expensive.

Taking it all together, IPG offers the best value.

Profitability

We'll look at six measures for the profitability factor:

• gross profit to assets
• net income margin
• 5 year average pre-tax return on assets
• 3 year average return on equity
• operating income margin
• free cash flow yield.

	GP/A	NM	5 YR Avg Pre-Tax ROA	3 Yr Ave ROE	OM	FCF	Sum	Rank
TTD	.32 4	.18 6	.08 6	.07 4	.22 6	.01 2	28	6
RAMP	.37 5	.03 3	.00 2	-.03 2	.04 2	.02 4	18	3
NLSN	.20 3	-.11 1	.03 3	.01 3	.17 5	.06 5	20	4
JCDXF	.15 2	.07 5	.04 4	.09 5	.08 3	-.01 1	20	4
IPG	.08 1	.07 4	.06 5	.28 6	.10 4	.01 3	23	5
GRPN	.76 6	.00 2	-.03 1	-.21 1	.02 1	.06 6	17	2

TTD had the best profitability results followed by IPG.

What I think

My instinct is to be more defensive given the declining momentum.  I'd like a healthy company with a good dividend and IPG fits the profile.  It's dividend is good.  It's profitability factors are appealing and its good value.  On the downside, its momentum is poor and its quality isn't standout.  However, I could live with those factors.

If You Just Want to Know The Highest Score

Here are the results in tabular form.

	Price Momentum	Quality	Growth	Income	Value	Profitability	Sum	Final Rank
TTD	6	4	6	0	1	6	23	5
RAMP	5	6	5	0	2	3	21	4
NLSN	1	1	1	5	3	4	15	1
JCDXF	2	3	2	4	5	4	20	3
IPG	3	2	4	6	6	5	26	6
GRPN	4	5	3	0	4	2	18	2

Look at that, IPG has the highest score.  I like it.  I'm going to watch how it does, maybe take a small position.