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Valuation Dashboard: Technology - Update

Summary

4 key fundamental factors across industries in IT and Telecom.

A valuation status relative to history.

A reference for picking stocks in each industry.

This series provides a valuation dashboard using the GICS classification. Each sector is covered once a month. This issue covers Technology and Telecommunications. It aims at giving reference values for a top-down approach across industries. A list of stocks to consider is offered in the conclusion without detailed analysis.

Methodology

I take 4 aggregate industry factors provided by portfolio123: Price/Earnings (P/E), Price to sales (P/S), Price to free cash flow (P/FCF), Return on Equity (ROE). My choice has been justified here and here. Their calculation aims at limiting the influence of outliers and large caps. They are reference values for stock picking, not for capital-weighted indices.

For each factor I calculate the difference with its own historical average: to the average for valuation ratios, from the average for ROE, so that the higher is always the better. The difference is measured in percentage for valuation ratios, not for ROE (already in percentage).

Industry valuation table on 4/19/2016

The next table reports the 4 industry factors. There are 3 columns for each factor: the current value, the average ("Avg") between January 1999 and October 2015 taken as an arbitrary reference of fair valuation, and the difference explained above ("D-xxx").

...

P/E

Avg

D- P/E

P/S

Avg

D- P/S

P/FCF

Avg

D- P/FCF

ROE

Avg

D-ROE

Internet

44.21

38.33

-15.34%

3.16

2.93

-7.85%


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