The DCFHub Blog

It has come to my attention that neither the daily nor the current weekly updates properly updated this weekend. My apologies.

I have been extremely busy the last two weeks, and I haven't had the time to check the website beyond automated tasks. So, these issues may have popped up even earlier. I believe they are fixed now.

The Finviz website, which is my current raw data source, is down tonight, so I am unable to update the current valuations. I apologize for any inconvenience, and I look forward to updating again whenever they get back up.

During the latest earnings season we saw some strong beats from the likes of Netflix and Facebook. According to the DCF Hub methodology, these stocks were quite overvalued (valuation percentage in excess of 200%) leading into the report.

Of course, the gains from those beats are evaporating now, but this has me thinking. Are overvalued stocks actually more likely to beat on earnings than undervalued stocks?

Here's how I think about it: if a stock is overvalued then either the market is excessively optimistic or the analyst estimates on which I base my calculations are excessively pessimistic. If the former is the case, then this has no bearing on the earnings report. It is just another day for mr. market to remain silly. But if the latter is the case, then the day of the earnings report is the day of reckoning.

I'll need to pull together some data to test this theory. But in my anecdotal experience, earnings report days have been opposite days for value investors.

Has anyone else experienced this?

The market discount rate today stayed at 7.5%. I believe we are on the precipice of a significant correction.

These are the Scotttrade margin interest rates today.
$0.01 - $9,999.99  - 7.75%
$10,000.00 - $24,999.99  - 7.50%
$25,000.00 - $49,999.99 -  7.25%

Until the market discount rate rises significantly above those borrower rates, mass margin calls and a mass meltdown seems imminent.

Here's an interesting link from Ray Dalio's Bridgewater. If you have thirty minutes go ahead and watch it. If you don't have thirty minutes bookmark it and watch when you do.

http://www.economicprinciples.org/

I've made this point before, and I'll make it again.

But it bears repeating.

Net present valuations change rapidly, therefore, it is just as important to monitor the direction of the valuation as it is to buy at a discount.

The historical prices and net present values presented on DCFHub are not adjusted for stock splits. I apologize if this creates any confusion.

This can have a big impact if you look at the list of top valuation gains and losses. A company with a recent stock split will shoot right to the top or bottom of the list. 

This anomaly can also impact the valuation percentage as well for short periods of time as the valuation are based on earnings per share analyst projections.

I'm trying to think of a way to fix or at least flag this, but until I do, just note this as part of your due diligence.

I have to admit- I haven't been updating these lately.

It looks pretty much the same every week, and I haven't been able to figure out an automated way to update the graphic, so I'm just leaving it most weeks.

Hopefully I'll figure out a better way to do this soon.

2/15/2014 Update: This is fixed. The current chart is current, and I will be updating historical charts over the next couple of weeks.

So you may be wondering:

What are these bell curve charts on the site?

The distribution charts are a histogram that show the range of valuation ratios calculated each week by the DCFHub discounted cash flow valuation methodology. DCFHub uses these histograms to determine the current discount rate every week.

The idea is that the theoretical price per share (in this case, the net present value) should match the actual trading price per share as closely as possible, for as many tickers as possible. The valuation percentages should form a bell curve centered around a valuation percentage of 100%, and the less variance the better.

The bell curve chart on this page, and in the website banner, shows the distribution chart produced by the DCFHub discounted cash flow methodology compared to other common methods of valuing stocks. The valuation methods, in order of least variance to most variance are:

1. Discounted cash flow (orange line) 
2. PEG ratio (blue line)
3. Price-to-book value (green line)
4. Price to sales ratio (red line)
5. Price to cash (purple line)

Each of these methodologies produced a curve centered around 100%, but because the discounted cash flow methodology produces the tightest distribution, it did the best job predicting current stock prices.