Value Investing in Nepal?

Value Investing in Nepal?

As we know that there are several valuation methods that help to find the undervalue of stock such as Price to earning ratio (PE ratio) & Price to book value ratio (PBV). But the Graham Number is best to find the under value of stock. The Graham number is value that measures a fair price of stock’s fundamental by taking company EPS & Net-wort per share.

The Graham Number = Square Root of (15) x (1.5)  x  (EPS) x (Net worth per Share).

On this formula 15 is PE and 1.5 is PBV and both are fixed but in Nepal we know that overall industry of PE & PBV is higher than 15 & 1.5 hence the default formula is not effective for Nepal, so we have made some changes in Graham Number formula: 

The Graham Number in Nepal = Square Root of (Ind. PE) x (Ind. PBV) x  (EPS) x (Net worth per Share).

Commercial Bank Industry:

The Graham Number = Square Root of (22.3) x (2.75)  x  (EPS) x (Net worth per Share).

Development Bank Industry:

The Graham Number = Square Root of (21.65) x (2.31)  x  (EPS) x (Net worthper Share).

Example of Graham Number 

For example, if the earning per share for a single share of company NMB is 21.71 , the Net worth per share is 145.32, the Graham number would be 440. ((22.3 * 2.75  *21.7 *145.32)= 440). Hence if the closing price/ LTP  of NMB is greater than Graham Number is Overvalued or vice versa.