It is finally here! 🔥 My 3rd and most important script in my Financial series! 🚀
Ever imagined to see all fundamentals (or many that is) combined into one indicator that is right on your chart, showing you how your favorite stock is trading compared to its fundamentals? Well, here is your answer! 📡
This script shows you my own personal interpretation of fair value, based solely on the financial fundamentals of a company compared to market averages. I don't believe that certain sectors of the market should be priced higher than others. If you look at historical data you'll see that favored sectors always rotate - placing insanely high P/E multiples on some sectors. Once they are "out" and people rotate away from those sectors you're left with nothing but the naked fundamentals that matter. So, you'll see many companies, that have been doing well on paper, see their share price decline by 70-90% for no other reasons than people favoring other sectors.
That's why it's even more important to focus on fair value that is solely fundamentals-based. Know when your stock gets to expensive. 🤯
To give you some examples: - Most Megacaps trade at historically high valuations, several times my fair value. Those include AAPL, MSFT, NVDA, AMZN, TSLA, JPM, TSM, V and so on. And no, in the past they partially traded below (my) fair value. - Most Cybersecurity / Cloud companies are trading at truly massive multiples of my fair value. (NET, DDOG, etc) - Many Smallcaps & Midcaps are trading several multiples (OESX, CODX, QFIN) below my fair value. And no, in the past they partially traded above (my) fair value.
Ok, so much about the market. You ultimately decide how much you want to orientate on fair value. 👨🏫
If you use all 3 scripts together it will look like this, giving you truly deep and simple information about the fundamentals of a company:
Example 1 - AMD
Example 2 - HZO
Example 3 - APPS
I hope this script makes your investing and stock picks a lot easier! 🔆💹🕗
Disclaimer:Fair value is always subjective. There are many different approaches to fair value. This one is only my personal interpretation. Disclaimer 2:This script works only for the Day-Timeframe. Disclaimer 3:This script uses 17,5 P/E and 3,0 P/S as market averages. The actual average keeps changing but, historically speaking, these seemed to be good numbers.
Great work, I was looking 4 something like it , Thanks for sharing :)will use and examine it
The_Silen
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@tsippi100, wow thanks mate, really appreciate it! Glad I could be of use ☺️
Let me know if you have any questions or feedback :)
Kielbasa
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Not sure what the dark blue line for the financials fair value indicator is telling us. It says it compares how historical valuations have behaved compared to fair value and simulates a fair value guideline? Again, not sure exactly what that means?
The_Silen
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@Kielbasa, Hey there and thanks for the question! 🙃
Maybe it's best explained with examples: Assume you have a stock at 1USD but its fair value is 10USD -> The stock trades 90% below fair value and has traded like this in the past. Therefore, the blue line will automatically be at fair value - 90%. If the stock suddenly move up to -80% of fair value, the blue line will stay at -90% of fair value as the stock has traded historically around this area. It will slowly adjust towards -80% though if the stock keeps trading at -80% of fair value for a long period of time.
So, the blue line tries to simulate where the stock would be trading according to how it traded in the past compared to fair value.
Does this help?
Kielbasa
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@The_Silen, Got it! Much clearer now. Thanks again for taking the time and explaining. Great indicator!
It used to trade waay above fair value in the past - if it still traded like this it would trade around 24$ right now. So, according to all measures, the stock is greatly undervalued at the moment, especially compared to how it traded in the past. Meanwhile, it was insanely overvalued between July 2021 December 2022, where it traded much higher than past historic valuation compared to fair value.
Kielbasa
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@The_Silen, Thanks for the reply. Thought that was the gist when I first looked at it, a relative measure of where price has been in the past in relation to the fair value line that was calculated, which is a great idea. Not sure if you were using some kind of an average price of the stock over the quarter since the IV can only change after each quarter or whether you are using a longer average of where price was relative to the IV. Anyway, got a little confused when I looked at TSLA where the price was collapsing but the Blue line just keeps going up and to the right diverging more and more from price and IV. Thought maybe it had something to do with the price split.
The_Silen
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@Kielbasa, Sorry, my answer somehow did't get posted.
You're right, the fair value lines are based on Financial Quarter Data.
For high growth stocks like Tesla, the phenomenon is pretty normal as they use to trade at insane multiples compared to fair value before strong growth sets in. Once the growth sets in that multiple rapidly contracts but the blue line is only adjusting slowly as it is based on all historically available data. So it estimates a multiple that is close to the past ones and only slowly adjusting that one lower as the time passes. So you need to account fot that.
Kielbasa
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@The_Silen, , Got it! Much clearer now. Thanks again for taking the time and explaining. Great indicator!