What companies can you find that are selling for below their sticker price? Leave a comment below with your answer. Are you busy but want to learn more about investing? Listen to my podcast on your commute to work or while you're home making dinner! Click here for my top 10 best episodes: bit.ly/2ngdFsz
Look at Biogen -BIIB- Big Company PE Ratio of 8 Free Cashflow of the last 4 quarters: about 30$ per Share. Share is around 221$ so even Cheaper than 10x free Cashflow. Low Debt, Huge mode, lot of Insider buying rn, just negative press. Ray Dalio is also invested
Between 2009-2011 i purchased for cash 10 residential rental properties for around $10,000 each. Fixed them up and have been renting them for $795-$850 for the past 10 years. They paid themselves off in 1.5 years. They are cash flowing machines. Now their value is between 60k and 110k each. Now i have been using that money to fuel my stocks portfolio which has increased to 250k over last 2 years. I love my 100% gainers! I never touch a penny of that money i just keep rolling it over to the next value stock that i did my research on. I only sell after my stocks go up minimum 100%. My home is paid for and my monthly expenses are $950. I live very frugal, though i dont have to. I have more fun saving and investing than i do spending money. All this and i still drive my 1998 ford escort that i bought 11 years ago for $2500. I use to work 50-60 hours a week in a cabinet shop for 10 years but now with realestate i have my life back and i am no longer trading my life for money. The 2009 realestate crash created alot of net worth for alot of people who were hungry for it. My story is just one of many! I am thankful to have a story to tell. When eveyone was calling me "stupid" and "why do you want to buy realestate the market is crashing youll lose everything!" I went with my gut knowing i could fix up that property and find a good tennant. I started with one property and kept on going. Now those same people today are telling me they wished they would have invested when i did. So now they are still stuck in their 9-5 and hate it. I told everyone that now is the time to buy but i guess i was the "stupid" one! lol Do i dare say, "I'm looking forward to the next market crash!" Im living proof that's how small fortunes are made! Live frugal and keep investing and rolling that money over.
@@kishorekumar624 In the midwest region. Prices were all the same everywhere within the same type neighborhood. But I did not buy in ghetto areas. The older bluecollar neighborhoods but still kept up descent. Not very big homes, around 1000 sq.ft. or less (houses and condos) but still able to bring in rent between $795-$925 which is a good average for this area. Four of those tenants are now sec. 8 which I'm starting to like more and more. (Guaranteed state money.)
Hi Phil. Really great and simple explanation. Thank you for keeping educating us. I think there is a misspoke at 7:29. I think you meant maintenance capital cost $1000 per year, not per month. Correct?
Phil, after reading your book Rule One Investing book, Investing in the stock market is the best thing ever invented. After watching this video and after reaching my own conclusions, real estate is the second best way to make money and become wealthy. It will be wonderful if you could write a book on real estate just like you approach stocks. Teach us how to determine the growth rate, the sticker price, etc. Thank you 🙏
*Altria (MO) fits this criteria.* Free Cash Flow is $8.15B. x10 = $81.5B. Current market cap is $75.1B! MO is at excellent value and this is just another method that proves it :) Other examples are ABBV, ETFC
This is one of the best videos in my opinion. Because my goal is individual stock investment first and then Real Estate investment. I just learned more from you yet again. Thank you Phil! God bless!
Hi. So when I look at the "free cash flow" line of a company's cash flow statement in their financials, the number is in the millions or billions. I don't understand what you mean by "multiply by ten" to decide if it's a good deal. There must be some other factor to divide this number by.
Christian Alexander I guess this would have to do with the percentage of stock you’re looking at buying? Would you multiply the small percentage of stock you’re buying by ten, rather than the million or billion number? I think this works... I’m just getting started in investing myself so I’m just having a go at helping you figure this out.
@@chinesemedicine In the video he mentions doing this with Apple stock around 2017 (2 years ago) Apple's Free Cash Flow was 51,774 Billion in 2017. Multiplying the FCF by 10 = 517,740. Now take that number and divide it by the number of total shares in the market at that time (Roughly 5.3 Billion shares) and you get the price at which you want to buy the stock at. However in order to divide the shares appropriately you must use 5300 instead of 5.3 as the total outstanding shares are always a rough number just like if we reported Apple's FCF as 51.7 Billion instead. The price of Apple stock at that time ranged around $100 a share. Calculated out the price at which it is equal to 10x is $97.67 per share.
Keep in mind though that taking the average of a company's FCF over a few years is always wise as basing your buying decision off a record FCF year could mean that you are drastically overvaluing the company's true FCF future.
If I understand your explanation correctly ... it sounds like you recommend not to buy stock with P/E ratio > 10.0x ... please let me know if I misunderstand it.
Bank stocks according to the DCF calculator are significantly undervalued. Most of them including JPM, BAC, and WFC are well over 10 cap. And with a recession most likely occurring in the next 2-3 years, i think it would be wise to slowly buy until then. And once it drops, pour money in like there’s no tomorrow. HD is also a play at this price point
Thanks for sharing this. It really helps me get a better grasp of determining when to buy. According to this I have made both good and bad decisions in the pasr.
To my understanding if the free cash flow times 10 is equal to the market cap of the business it's fair value. If the market cap is significantly LESS than free cash flow times 10 it's a discount. So using this method ( and factoring in many other things ) Fiat Chrysler, TEVA and Micron Technology are the best buys right now
Can you do an example where you take a company, find out its free cash flow, and show how much we should pay for it? I just did it for VRSK. Looked up its Balance Sheet and Statement of Cash flow on SEC. Its operating cash flow was 956.3 mil. Minus Capital Expenditure of 216.8 mil gave me a free cash flow of 639.5 mil. Dividing by outstanding 163076000 shares gave me 3.9. Times ten would be $39. Does this seems to be the correct price to pay for VRSK? Right now, VRSK is trading for $148.
Phil energy stocks on sale and when travel gets back to where it was (( cruises ,Airlines, etc ) fuel will continue to go up !!, Stock SHLX pays 16.43 percent dividend and PE of 8.67 With eps of 1.29 off one year high of $22.00 from March of 2020 its a long position Down side Electric vehicles and green energy . What’s your thoughts ?
An example with an actual stock would have been helpful, even if it failed the 10x test. Maybe I missed it, what figure are we supposed to be looking at to compare the 10x number to? Also, how might you use this tool to see if past purchases were “worth it”?
So the formula is: Free Cash Flow Per Share / Share Price. This is the same as stating Free Cash Flow / Market Cap. The reason why 10x is a bargain is because 10x = 10% yield. Which is really really good. In 10 years 10%/year = 2.59x your money. 11x is still good as that's a 9.09% yield which is 2.39x your money. If you can find one for 9x then that's even better as that's an 11.11% Yield which is 2.87x your money. There's nothing to really compare it too. Essentially, the smaller the multiplier the better, like 9x. But the smaller the multipler the more impossible it is to find great companies at that price.
Abercrombie is sitting at a POE of 7.2. faces a few challenges, but nothing I think they can't handle, otherwise a healthy business. probably going to add it to my portfolio this Monday, hopefully, the price drops a little more over the weekend ;) Morgan Stanley POE is 2.5. Their financials ain't too good, and they haven't been doing so well despite the bull market. I'm worried they might tank doing the coming recession, but it got some juicy value. Etrade is sitting at 6.7. Havn't looked much into them, have a lot A LOT! of liabilities, but I suspect these are mostly from the leverage used on their platform. NN group sitting at 6.2. Got negative free cash flow, and negative operating cash flow, but it sure is cheap. And last but not least Peugeot trading at POE of 5.6 havn't looked into them, but unlike NN group they actually look a lot healthier. Any thoughts on the above companies?
Excellent video. You have just got another subscriber. One question, do you have a video explaining what to pay for a certain share of stock at a given moment. Sorry, but I think it's called an intrinsic value. How to calculate it? Let's say PayPal sells right now at $137 and I wanted to find out what is the real price value plus margin of safety, how to calculate this? Thanks in advance
Great Video, to determine the buy price, is it better to use the calculated margin of safety price from valuation or the ten cap price? Should you still buy if price is trading at margin of safety price, but less the 10% earnings yield, (ten cap)? Thanks
The free cash flow of many major companies are available on the macrotrends website for free. However keep in mind that smaller companies and companies with negative cash flow may not be available or the only cash flow data available will be quarterly in which case you should take the average quarterly FCF and multiply it by 4. Averaging yearly FCF is also not only a good idea but almost mandatory as FCF rarely remains constant from year to year and in order to determine what sort of return you can expect from a company bad FCF years must be counted as well. (Unless the average FCF is negative in which case you shouldHeavily research the company to determine if it has any investment potential at all.)
question for the people: what do you think about Phil Town's Rule #1 Investing? Didn't follow him that much but I am looking for more investing/financial adjudication. I am aware of basic things like money flow, assets, liability etc. I am 25 and want to start with investing. It seems there is a lot of people giving advice on investing. Should I follow this channel? Does content on this channel apply worldwide? Thank you
So, when I started, I began with technical investing. Thankfully, I never invested anything with that, but I wasted about 4 months learning it all. Then, when I moved on to actual investing, the first book I read was the intelligent investor. The second book I read was Rule 1 investing or Phil's book and then I just feel off the deep end into investing. The intelligent investor is an amazing book which every single DYI investor needs to read. However, I won't lie, I was confused or bored or both? At many parts of the book. Phil's book on the other hand connected with me quickly and gave me a frame work for investing. This includes everything you need to consider when investing, and everything is based on Warren Buffetts own investing methods. Of course, after learning a lot more I went back and reread the intelligent investor and it all makes sense to me now. And yes, the intelligent investor really is one of the most important books out there for investing. So, yes, this channel has great information and yes it's applicable to global markets. A key thing to note though, is that value investors, or Rulers as Phil calls us, only invest in asset producing securities. If you are interested in Futures trading, Forex, and other speculation, value investors and this channel has nothing for you. One thing to keep in mind, if you want to get good, it's a lot of work. It took me a year to become competent, and I know I will likely never stop learning. Part of that year though, was building my own spreadsheet to make things more automatic.
Yes, he teaches good fundamentals and 3 basic ways to look at intrinsic value. You will want to expand. Get a good hold on accounting as everything builds from it: - The Accounting Game by Mullis & Orloff - Warren Buffett Accounting Book by Stig and Preston - Financial Statements by Ittelson Read: - The Dhando Investor by Mohnish Pabrai - The Essays of Warren Buffett by Cunningham - If you want a glimpse of Phil's stuff read Invested by his daughter Danielle Town - You Can Be A Stock Market Genius by Joel Greenblatt - Master The Market Cycle by Howard Marks - There is a pdf of everything Buffett ever wrote, nearly 5,000 pages Then start reading annual reports, lots of them. Learn to pass very quickly on ideas to not waste time. Check out Mohnish Pabrai's videos and reading list. That'll get you started.
Hi Phil, It’s hard now, but yes I find for example the jewelry producer Pandora (ticker Pandy) Price-to-Owner-Earnings/Pandora-AS and free cash flow 4-5!
@@Alisskaa Hi Alissa, Thanks for your comment. Maybe you are right and it’s a value trap. But my girlfriends like their products and they have a strong long term incentive program for (the new) management. And I know a German good value fond who bought the shares. With regards
Hi Phil, I was wondering, when looking out for FCF I come across the terms levered and unlevered FCF. I suppose that Levered Free Cash Flow is the same as the FCF that you refer to in your movie is it not?
I'm a young new investor and I just want to clarify, when you say multiply the company's free cash flow by ten and that's the price you should buy how does that work? quick example: company has 1 Million dollars in free cash flow, times 10 gets 10 million dollars. so what do I do with this 10 million dollar value? am I doing the calculation right? am I even calculating with the correct numbers? Any explanation is appreciated!
I checked the statement of cash flows for a few large companies after watching this and was not able to locate "operating cash flow" or "purchase of property and equipment" is it possible they could be worded slightly differently? How else might these be phrased on a company's statement of cash flows? Thanks!
Apple reports their operating cash flow as, "Cash generated by operating activities" and their Purchase of propert plant and equipment or CapEx is reported as "Payments for acquisition of property, plant and equipment" Link to their 10-k www.sec.gov/Archives/edgar/data/320193/000032019318000145/a10-k20189292018.htm Press control + f then type either "Cash generated by operating activities" or "Payments for acquisition of property, plant and equipment" to see exactly where these lines are.
I know I’m a little late but I did this math with CVS today and I got 99. It’s currently trading at 65. It seems too good to be true. Did I do the math wrong?
@@marksoberay2318 that's not an excuse to buy something completely out of wack with Buffet's "magic formula". I can guarantee you that 10x rule is just the most basic rule possible, and applies only to stagnant trash boring stocks like banks and utilities. Tech is in a whole another league, similar to how some expensive cities are.
@@vitaminb4869 I'm being sarcastic. Avoid Amazon the stock hasn't moved in 2 years, the pe is a silly 90 and could easily drop to 40 or lower and you lose half your money
@@marksoberay2318 Hasn't moved in 2 years? It's up 76% in past 2 years. And no one looks at PE's. It's same thing as coming to Vancouver trying to buy a house for $100k just because that's how much they go for in your village, when there is absolutely no house less than a million in Vancouver. They will just laugh at you and tell you to not waste their time.
For me right now. I do not quite understand this method. What I do is a list of companies shares and I look if the value did go down. I never buy a share, unless the value is down. Since the market always recover. If they go down 4%. I just did 4%. Why it is so complicated to understand? I buy shares of great companies. But If I would think that one day they would close. I would never buy one share.
No! As an SEC certified investor I am not able to make recommendations. I provide the knowledge and resources for you to be able to find wonderful companies that have meaning to YOU.
Yes, the reason being is that all a 10cap stock means is that it should return 10% per year over 10 years. The valuation method works on all companies. However, just like with all valuation methods it may not be accurate for all companies.This inaccuracy comes from not understanding financials, not looking at the management, not seeing if the company has a durable competitive advantage, etc.
One of the clues is they talk straight about their mistakes and problems in the company. If they use language that obscures problems instead of putting them right in your face, that's a red flag.
I a Have a few CEFs that are selling at a good discount to Nav that are giving a close to 10% yeild off of earnings. Wouldnt this qualify as a 10 cap especially if their market price and nav are growing over time?
Hi, Phil! Great information. I love your channel! What do you think about this book: Tom West - The essential guide to pricing businesses and franchises? 2019 edition
Check out InvestED Podcast Episode 25 where I give some real-life examples of companies that have gone through some sort of event in the past that put it on sale, complete with resources and show notes: bit.ly/2p5QOR6
For sure he's Warren Buffett's disciple, revealing his top secrets. Have to say I love Phil. To the question at the end: It's Mar 19,2020 now. After 3 routs in a couple of weeks and the sharpest plunge of the markets, there're plenty of ten caps. For example STOR gets $458 Million FCF, $4.16 Billion Market Cap. Enjoy the gold shower, Phil.
TESLA!!!!!! 500 shares! Let's see this in 10 years. Posted today 3Oct2019. Revisit this in 3Oct2029. Only time will tell, laugh at me if I'm wrong. Love what they are doing :)
Hi Phil, what's your take on building a Ray Dalio like all weather portfolio now for me as a newbie given the looming recession. I have 10 to 15k to invest now. Love your videos. Thanks
@@jawadshuaib Hi Jawad, Look at the 10K document of the company. Anyway FCAU has a good cash flow, it has a low debit also in comparison with FORD, GM and Toyota. ...and it's results in US are very good. Moreover it's sold at a very good price. I suggest you to make your analysis to evaluate it from your point of view.
Great pick, I own it. It's a price to FCF of about 4.5 - 5.25 depending on full year free cash and trades at about 7.5 times if you include net debt. In 3-5 years the majority of cash will come back through contracted earnings. If the bull case doesn't play out, then there is a low probability of loosing your principal. If it does play out, then it is definitely a multi bagger and trying to figure out how/when to exit will become our predicament.
This all sounds good but must be nonsense... As of March 2020, following this rule, Apple would need to sell off by 64% to reach this price (around $40) (so I call bull on the fact that Apple was a Ten cap when you bought into it) and for a firm like Visa, that would be a sell off of around 70% to come down to the $71 needed and that's even being generous and using 2019 FCF. Chipotle would need to sell off a whopping 93% to reach the price recommended of around $103 and at this point if a stock falls by these numbers then you're not really investing, you're betting on distressed assets let's be real.
I believe micron is one of those companies. ($MU) the p/e ratio is 5 and is making so much on ROE. Eventhough it went down due to global trade issues, im still optimistic. What do u think?
Micron has industry secular tailwinds, has oligopolistic nature (a big thing people miss that can add a lot of value) that may take some time to prove out and management is retiring shares. It is fairly attractive. I bought at average cost of $35. I did speculate and sell half at $50 to try and buy more. I'm optimistic that the price will keep falling. Correlation of events in the past don't necessarily align with the present but industry capex shows earnings bottoming early/mid next year and stock price has lagged that roughly 6 months or so. I'm hoping towards the end of this year and into next year I can buy more. With any luck it'll go under $33. The stock shouldn't trade there and it should not have gotten as cheap as it did, gotta love how much animal spirits play into it. I'm very bullish over the long term but hoping for better pricing in the short term.
@@gintonik6208 No, not sure where you got those numbers. Market cap of 48 billion less net cash of about 3 billion means your paying about 45 billion. Currently it has FCF of about 3.3 billion or 4 billion adjusted ($2.95-3.55 per share). With cyclicals, you have to try and normalize cash flows through a cycle. You also may want to consider if you think the oligopoly will play out which will mean less of peaks and troughs. There is also buybacks and growth to consider. Not everything can always be valued simply as a 10 cap. Something growing rapidly at 40% sustainable at a 10 cap vs something fading away at a 10 cap are very different things.
@@sc358. Do you look at the Levered Free Cash Flow when making these calculations? I believe the OP took the numbers from finance.yahoo.com/quote/MU/key-statistics?p=MU Thanks for the insight!
@@jawadshuaib SEC Edgar. I look directly at the annual and quarterly reports. Kinda anywhere is fine to get numbers at first when your initially looking but if it passes initial screens you verify with the actual filings. If it's another country, then it's also a good idea to check their home filings to make sure they match. There were plenty of Chinese companies for example overstating their earnings, by a lot in the US filings compared to theirs.
These numbers are in the billions: and I used Apples 2018 annual report for the numbers. Free Cash Flow = $64,121 Free Cash Flow in 10 years = $641,210 Market Cap = Share Price $220.82 x Outstanding shares 4571 = $1,009,368 Current Yield = $64,121/$1,009,368 = 6.35% The Price you would need to pay per share for this to be a 10cap = $641,210/4571 =$140.28 So Apple is not a 10Cap Stock at the moment. It is a 15.7 Cap stock. 6.35% ain't horrible though as that would be 1.85x your money in 10 years. A 10Cap stock returns 10% per year, which is 259% at the end of 10 years, which = 2.59x your money.
@@matt9060 Thanks for the explanation!!! I understand where you got the free cash flow from in the 2018 report [Subtracted the cash generated by operating activities (77,434) from the Payments from acquisition of property, plant and equipment (13,313). Where did you get your Share Price of $220.82 and Outstanding Share of 4571 from? Thanks.
@@hartmanmadu6017 So the share price came from the time I looked at it. Currently it is $227.01. You can simply google the share price or use any of your favorite websites, or your brokerages quotes. As for the outstanding shares, I used their 10-Q report and I got the number under the section, "Shares used in computing earnings per share: Basic" Edit: I was too lazy to mention I got this number from their most recent 10-Q report in my original comment. Honestly though, it's easiest just to use morningstar's data as it's accurate and you get 10 years of data all at once. financials.morningstar.com/income-statement/is.html?t=AAPL®ion=usa&culture=en-US&platform=sal
@@matt9060 Thanks for further explaining where you acquired the data for your calculations! Really appreciate it! Maybe you should start a youtube channel on investing!
Actually my client told me to purchase shares in shopify when it was at $300 a share... not it is at $1000 a share.... guess I screwed up slightly haha
When applying this idea to stock investing I would calculate the owner earnings per share, then multiply that by 10 to determine the price I should look at buying saod stock at. Is that correct?
What companies can you find that are selling for below their sticker price? Leave a comment below with your answer.
Are you busy but want to learn more about investing? Listen to my podcast on your commute to work or while you're home making dinner! Click here for my top 10 best episodes: bit.ly/2ngdFsz
I’ll give you 2 names if you give me 2 names first 😁
Acuity Brands #AYI ... (almost anyway)
We must invert the story to know why someone would sell you their shares and give up that 10% FCF yield and most importantly why they’re wrong
Look at Biogen -BIIB-
Big Company
PE Ratio of 8
Free Cashflow of the last 4 quarters: about 30$ per Share. Share is around 221$ so even Cheaper than 10x free Cashflow.
Low Debt, Huge mode, lot of Insider buying rn, just negative press.
Ray Dalio is also invested
davuslgi why would someone sell you their shares at that price then? What’s the fear around the company and why is it not warranted?
Between 2009-2011 i purchased for cash 10 residential rental properties for around $10,000 each. Fixed them up and have been renting them for $795-$850 for the past 10 years. They paid themselves off in 1.5 years. They are cash flowing machines. Now their value is between 60k and 110k each. Now i have been using that money to fuel my stocks portfolio which has increased to 250k over last 2 years. I love my 100% gainers! I never touch a penny of that money i just keep rolling it over to the next value stock that i did my research on. I only sell after my stocks go up minimum 100%. My home is paid for and my monthly expenses are $950. I live very frugal, though i dont have to. I have more fun saving and investing than i do spending money. All this and i still drive my 1998 ford escort that i bought 11 years ago for $2500. I use to work 50-60 hours a week in a cabinet shop for 10 years but now with realestate i have my life back and i am no longer trading my life for money. The 2009 realestate crash created alot of net worth for alot of people who were hungry for it. My story is just one of many! I am thankful to have a story to tell. When eveyone was calling me "stupid" and "why do you want to buy realestate the market is crashing youll lose everything!" I went with my gut knowing i could fix up that property and find a good tennant. I started with one property and kept on going. Now those same people today are telling me they wished they would have invested when i did. So now they are still stuck in their 9-5 and hate it. I told everyone that now is the time to buy but i guess i was the "stupid" one! lol Do i dare say, "I'm looking forward to the next market crash!" Im living proof that's how small fortunes are made! Live frugal and keep investing and rolling that money over.
I did the same in stl. Rent is not as high. But definitely cash cows.
Where do you live and where did you buy your properties?
@@kishorekumar624 In the midwest region. Prices were all the same everywhere within the same type neighborhood. But I did not buy in ghetto areas. The older bluecollar neighborhoods but still kept up descent. Not very big homes, around 1000 sq.ft. or less (houses and condos) but still able to bring in rent between $795-$925 which is a good average for this area. Four of those tenants are now sec. 8 which I'm starting to like more and more. (Guaranteed state money.)
Hi Phil. Really great and simple explanation. Thank you for keeping educating us. I think there is a misspoke at 7:29. I think you meant maintenance capital cost $1000 per year, not per month. Correct?
Finally, a simple answer to a question I have been pondering, thats why I love your explanations. They are simple and easy to follow. Thanks again.
Phil, after reading your book Rule One Investing book, Investing in the stock market is the best thing ever invented. After watching this video and after reaching my own conclusions, real estate is the second best way to make money and become wealthy. It will be wonderful if you could write a book on real estate just like you approach stocks. Teach us how to determine the growth rate, the sticker price, etc. Thank you 🙏
*Altria (MO) fits this criteria.* Free Cash Flow is $8.15B. x10 = $81.5B. Current market cap is $75.1B!
MO is at excellent value and this is just another method that proves it :)
Other examples are ABBV, ETFC
Everything is so expensive right now. I will be patience and keep making a wish list of wonderful businesses.
Same here. I'm looking forward to the next recession so I can pick up some great stocks for a bargain!
Won't be soon the way it looks...if jobs numbers are bad tomorrow, look out below!
Amit Singh
Nah, keep doing your research, there are deals now in the stock market.
Agree
few chinese stocks good value now ,anyone into these ?
This is one of the best videos in my opinion. Because my goal is individual stock investment first and then Real Estate investment. I just learned more from you yet again. Thank you Phil! God bless!
Hi. So when I look at the "free cash flow" line of a company's cash flow statement in their financials, the number is in the millions or billions. I don't understand what you mean by "multiply by ten" to decide if it's a good deal. There must be some other factor to divide this number by.
Hi did you figure it out?
Christian Alexander I guess this would have to do with the percentage of stock you’re looking at buying? Would you multiply the small percentage of stock you’re buying by ten, rather than the million or billion number? I think this works... I’m just getting started in investing myself so I’m just having a go at helping you figure this out.
And then you divide this number by the number of shares the business issued. You should get the stock price
@@chinesemedicine In the video he mentions doing this with Apple stock around 2017 (2 years ago) Apple's Free Cash Flow was 51,774 Billion in 2017. Multiplying the FCF by 10 = 517,740. Now take that number and divide it by the number of total shares in the market at that time (Roughly 5.3 Billion shares) and you get the price at which you want to buy the stock at. However in order to divide the shares appropriately you must use 5300 instead of 5.3 as the total outstanding shares are always a rough number just like if we reported Apple's FCF as 51.7 Billion instead. The price of Apple stock at that time ranged around $100 a share. Calculated out the price at which it is equal to 10x is $97.67 per share.
Keep in mind though that taking the average of a company's FCF over a few years is always wise as basing your buying decision off a record FCF year could mean that you are drastically overvaluing the company's true FCF future.
This is great thank you so much for your help and I love hearing you and Danielle banter you sounds like such a loving family!!!
Thanks for all you do Phil ! I hope you feel better.praying , you have a speedy recovery.
If I understand your explanation correctly ... it sounds like you recommend not to buy stock with P/E ratio > 10.0x ... please let me know if I misunderstand it.
Bank stocks according to the DCF calculator are significantly undervalued. Most of them including JPM, BAC, and WFC are well over 10 cap. And with a recession most likely occurring in the next 2-3 years, i think it would be wise to slowly buy until then. And once it drops, pour money in like there’s no tomorrow.
HD is also a play at this price point
Thanks Phil, great educational tool
should i subtract the company's debt from the cash flow ?
What does 'buying at ten cap price' mean? The market cap matches the ten cap price?
Very valuable thank you!
Thanks for sharing this. It really helps me get a better grasp of determining when to buy. According to this I have made both good and bad decisions in the pasr.
To my understanding if the free cash flow times 10 is equal to the market cap of the business it's fair value. If the market cap is significantly LESS than free cash flow times 10 it's a discount.
So using this method ( and factoring in many other things )
Fiat Chrysler, TEVA and Micron Technology are the best buys right now
I think we have to compare it with company value not market cap 🤔
Can you do an example where you take a company, find out its free cash flow, and show how much we should pay for it? I just did it for VRSK. Looked up its Balance Sheet and Statement of Cash flow on SEC. Its operating cash flow was 956.3 mil. Minus Capital Expenditure of 216.8 mil gave me a free cash flow of 639.5 mil. Dividing by outstanding 163076000 shares gave me 3.9. Times ten would be $39. Does this seems to be the correct price to pay for VRSK? Right now, VRSK is trading for $148.
Phil energy stocks on sale and when travel gets back to where it was (( cruises ,Airlines, etc ) fuel will continue to go up !!,
Stock SHLX pays 16.43 percent dividend and PE of 8.67 With eps of 1.29 off one year high of $22.00 from March of 2020 its a long position
Down side Electric vehicles and green energy . What’s your thoughts ?
An example with an actual stock would have been helpful, even if it failed the 10x test. Maybe I missed it, what figure are we supposed to be looking at to compare the 10x number to? Also, how might you use this tool to see if past purchases were “worth it”?
normally I look at PE ratio (Net income x PE = Market Cap)
So the formula is: Free Cash Flow Per Share / Share Price. This is the same as stating Free Cash Flow / Market Cap. The reason why 10x is a bargain is because 10x = 10% yield. Which is really really good. In 10 years 10%/year = 2.59x your money.
11x is still good as that's a 9.09% yield which is 2.39x your money. If you can find one for 9x then that's even better as that's an 11.11% Yield which is 2.87x your money.
There's nothing to really compare it too. Essentially, the smaller the multiplier the better, like 9x. But the smaller the multipler the more impossible it is to find great companies at that price.
@@matt9060 Thanks Matt! :-)
So do you divide the 10 cap # by the number of shares outstanding to find the purchase price?
I dont understand the 10% rule...Can someone explain it in detail please
Abercrombie is sitting at a POE of 7.2. faces a few challenges, but nothing I think they can't handle, otherwise a healthy business. probably going to add it to my portfolio this Monday, hopefully, the price drops a little more over the weekend ;)
Morgan Stanley POE is 2.5. Their financials ain't too good, and they haven't been doing so well despite the bull market. I'm worried they might tank doing the coming recession, but it got some juicy value.
Etrade is sitting at 6.7. Havn't looked much into them, have a lot A LOT! of liabilities, but I suspect these are mostly from the leverage used on their platform.
NN group sitting at 6.2. Got negative free cash flow, and negative operating cash flow, but it sure is cheap.
And last but not least Peugeot trading at POE of 5.6 havn't looked into them, but unlike NN group they actually look a lot healthier.
Any thoughts on the above companies?
Do you subtract the mortgage interest in the calculation?
Awesome explanation! but Which year's free cash flow should I look at? the recently issued or the previous ones??
Mr Phil do you think Boeing is on sale right now?
Please help what is the formula? is it..
free cashflow *10 / Amount of shares = price you should pay?
I enjoy your presentation .
So wait we take the free cash flow of the business and x 10 and if that's more than the market cap on the company is that a buy?
BAC free cash flow per share is $0.88, $0.88 x 10 = $8.8/share. Buffet bought BAC shares at a price three times that. What am I doing wrong?
new follower here. I look forward to attending an event in Atlanta
Do you mean by FCF is net income x 10 = market cap?
Mr. Phil, Has anybody ever told you, you look like Jamie lannister from game of thrones.
HAHAHA! He totally does.
@@thatdividendguy makes me surprised he's not just telling everyone to buy gold!
I can't unsee it now
Excellent video. You have just got another subscriber. One question, do you have a video explaining what to pay for a certain share of stock at a given moment. Sorry, but I think it's called an intrinsic value. How to calculate it? Let's say PayPal sells right now at $137 and I wanted to find out what is the real price value plus margin of safety, how to calculate this? Thanks in advance
Great Video, to determine the buy price, is it better to use the calculated margin of safety price from valuation or the ten cap price? Should you still buy if price is trading at margin of safety price, but less the 10% earnings yield, (ten cap)? Thanks
Where is the best place to find current FCF?
The free cash flow of many major companies are available on the macrotrends website for free. However keep in mind that smaller companies and companies with negative cash flow may not be available or the only cash flow data available will be quarterly in which case you should take the average quarterly FCF and multiply it by 4. Averaging yearly FCF is also not only a good idea but almost mandatory as FCF rarely remains constant from year to year and in order to determine what sort of return you can expect from a company bad FCF years must be counted as well. (Unless the average FCF is negative in which case you shouldHeavily research the company to determine if it has any investment potential at all.)
question for the people:
what do you think about Phil Town's Rule #1 Investing?
Didn't follow him that much but I am looking for more investing/financial adjudication. I am aware of basic things like money flow, assets, liability etc. I am 25 and want to start with investing.
It seems there is a lot of people giving advice on investing.
Should I follow this channel?
Does content on this channel apply worldwide?
Thank you
So, when I started, I began with technical investing. Thankfully, I never invested anything with that, but I wasted about 4 months learning it all. Then, when I moved on to actual investing, the first book I read was the intelligent investor. The second book I read was Rule 1 investing or Phil's book and then I just feel off the deep end into investing.
The intelligent investor is an amazing book which every single DYI investor needs to read. However, I won't lie, I was confused or bored or both? At many parts of the book. Phil's book on the other hand connected with me quickly and gave me a frame work for investing. This includes everything you need to consider when investing, and everything is based on Warren Buffetts own investing methods. Of course, after learning a lot more I went back and reread the intelligent investor and it all makes sense to me now. And yes, the intelligent investor really is one of the most important books out there for investing.
So, yes, this channel has great information and yes it's applicable to global markets. A key thing to note though, is that value investors, or Rulers as Phil calls us, only invest in asset producing securities. If you are interested in Futures trading, Forex, and other speculation, value investors and this channel has nothing for you.
One thing to keep in mind, if you want to get good, it's a lot of work. It took me a year to become competent, and I know I will likely never stop learning. Part of that year though, was building my own spreadsheet to make things more automatic.
Yes, he teaches good fundamentals and 3 basic ways to look at intrinsic value. You will want to expand.
Get a good hold on accounting as everything builds from it:
- The Accounting Game by Mullis & Orloff
- Warren Buffett Accounting Book by Stig and Preston
- Financial Statements by Ittelson
Read:
- The Dhando Investor by Mohnish Pabrai
- The Essays of Warren Buffett by Cunningham
- If you want a glimpse of Phil's stuff read Invested by his daughter Danielle Town
- You Can Be A Stock Market Genius by Joel Greenblatt
- Master The Market Cycle by Howard Marks
- There is a pdf of everything Buffett ever wrote, nearly 5,000 pages
Then start reading annual reports, lots of them.
Learn to pass very quickly on ideas to not waste time.
Check out Mohnish Pabrai's videos and reading list.
That'll get you started.
Hi Phil,
It’s hard now, but yes I find for example the jewelry producer Pandora (ticker Pandy)
Price-to-Owner-Earnings/Pandora-AS and free cash flow 4-5!
Michael S their business model is dying
@@Alisskaa
Hi Alissa,
Thanks for your comment. Maybe you are right and it’s a value trap.
But my girlfriends like their products and they have a strong long term incentive program for (the new) management. And I know a German good value fond who bought the shares.
With regards
Now...this is what I call a tip or a best advice ..thank you !
Hi Phil, I was wondering, when looking out for FCF I come across the terms levered and unlevered FCF. I suppose that Levered Free Cash Flow is the same as the FCF that you refer to in your movie is it not?
I don't understand. 'That's the price you should pay' if 10x free cash flow equals what? The market capital?
apple never had a PE ratio below 10. When was it 10 cap?
Yes Apple was under a 10 ttm pe, even recently. Early 2016 it was a 9,9 briefly. And he isn't talking about pe, it's about free cash flow
Great refresher, Thanks for your time.
Thank you phill for this video I have a question I would like to ask you which is how can i know if a company will grow in 10years
Hi. Phil,what about in leveraged scenarios where there is a mortgage. Wouldn’t you Subtract the mortgage interest and then have the owners earnings.
I'm a young new investor and I just want to clarify, when you say multiply the company's free cash flow by ten and that's the price you should buy how does that work? quick example: company has 1 Million dollars in free cash flow, times 10 gets 10 million dollars. so what do I do with this 10 million dollar value? am I doing the calculation right? am I even calculating with the correct numbers?
Any explanation is appreciated!
I checked the statement of cash flows for a few large companies after watching this and was not able to locate "operating cash flow" or "purchase of property and equipment" is it possible they could be worded slightly differently? How else might these be phrased on a company's statement of cash flows? Thanks!
Apple reports their operating cash flow as, "Cash generated by operating activities" and their Purchase of propert plant and equipment or CapEx is reported as "Payments for acquisition of property, plant and equipment"
Link to their 10-k
www.sec.gov/Archives/edgar/data/320193/000032019318000145/a10-k20189292018.htm
Press control + f then type either "Cash generated by operating activities" or "Payments for acquisition of property, plant and equipment" to see exactly where these lines are.
What about picking a stock that has below 10 P/E ratio. Much easier right?
Its more like P/FCF
Excellent Video! Should we look at the Free Cash Flow or the Levered Free Cash Flow?
Yeah, I'm from Vancouver, Canada, and I had a good, long chuckle at this.
Same here from Toronto!
Same here from Chicago.
I know I’m a little late but I did this math with CVS today and I got 99. It’s currently trading at 65. It seems too good to be true. Did I do the math wrong?
How come Berkshire bought Amazon with so rich valuation?
They look at casflow per share like all other Amazon investors.
This time it's different!
@@marksoberay2318 that's not an excuse to buy something completely out of wack with Buffet's "magic formula". I can guarantee you that 10x rule is just the most basic rule possible, and applies only to stagnant trash boring stocks like banks and utilities. Tech is in a whole another league, similar to how some expensive cities are.
@@vitaminb4869 I'm being sarcastic. Avoid Amazon the stock hasn't moved in 2 years, the pe is a silly 90 and could easily drop to 40 or lower and you lose half your money
@@marksoberay2318 Hasn't moved in 2 years? It's up 76% in past 2 years. And no one looks at PE's. It's same thing as coming to Vancouver trying to buy a house for $100k just because that's how much they go for in your village, when there is absolutely no house less than a million in Vancouver. They will just laugh at you and tell you to not waste their time.
But what about banks they seem to have negative cashflows🤔???
Is he talking about earnings per share?
For me right now. I do not quite understand this method. What I do is a list of companies shares and I look if the value did go down. I never buy a share, unless the value is down. Since the market always recover. If they go down 4%. I just did 4%. Why it is so complicated to understand? I buy shares of great companies. But If I would think that one day they would close. I would never buy one share.
I found one but there was not many
Building up cash right now and waiting for a sale
Does Phil ever recommend a stock or helps analyzing one?
No! As an SEC certified investor I am not able to make recommendations. I provide the knowledge and resources for you to be able to find wonderful companies that have meaning to YOU.
Excited to know, can't wait for tomorrow
What is up,phil? i have a question. Is the ten cap method can be applied to any stock market around the world? especially an emerging market stock?
Yes, the reason being is that all a 10cap stock means is that it should return 10% per year over 10 years. The valuation method works on all companies. However, just like with all valuation methods it may not be accurate for all companies.This inaccuracy comes from not understanding financials, not looking at the management, not seeing if the company has a durable competitive advantage, etc.
You're a great guy Mr. Phil
Aaaaand how do we know if we should trust the management team??
One of the clues is they talk straight about their mistakes and problems in the company. If they use language that obscures problems instead of putting them right in your face, that's a red flag.
It is great to find this kind of bargains.
But with time and nowadays this gets really really hard!
Its good if you can show how the calculation is happening - simply using a white board... Thank you
Quickest way to this is price/fcf metrics.
Altria maybe
I a
Have a few CEFs that are selling at a good discount to Nav that are giving a close to 10% yeild off of earnings. Wouldnt this qualify as a 10 cap especially if their market price and nav are growing over time?
Nothing is really on sale right now to 10X your returns. Keep building up your cash or at least invest in dividends. 😉
Passive Income Tom yeah your right, but something will reset soon.
Paid off, didn't it?
Hi, Phil!
Great information. I love your channel!
What do you think about this book: Tom West - The essential guide to pricing businesses and franchises? 2019 edition
13:00 the Golden equation
Great video Phil, love the simplicity! thank you
Thanks for watching!
Phil, any chance of a worked example for us numpties?
Check out InvestED Podcast Episode 25 where I give some real-life examples of companies that have gone through some sort of event in the past that put it on sale, complete with resources and show notes: bit.ly/2p5QOR6
For sure he's Warren Buffett's disciple, revealing his top secrets. Have to say I love Phil. To the question at the end: It's Mar 19,2020 now. After 3 routs in a couple of weeks and the sharpest plunge of the markets, there're plenty of ten caps. For example STOR gets $458 Million FCF, $4.16 Billion Market Cap. Enjoy the gold shower, Phil.
TESLA!!!!!! 500 shares! Let's see this in 10 years. Posted today 3Oct2019. Revisit this in 3Oct2029. Only time will tell, laugh at me if I'm wrong. Love what they are doing :)
It's on my calendar.
My average bought price was $265
@@zhenzhu8248 great investment. Now its at 360$
Damn. That was a good trade. 30% up since your comment.
@@mig-stallion1359 long term investor here, still have many years ahead :)
Argh, these premieres always get me. Alright then, see you tomorrow.
Sorry Carlos... the good news is that it is a great practice in patience, something all great investors must have 😉
@@PhilTownRule1Investing haha. Fair enough. Thanks for the video :-)
You are wonderful
Great video! Thanks
This video is awesome.
I like this video with your in depth look at a *Ten Cap*
Man , you do a great job with investment education ...Align is on sale according to MOS
Hi Phil, what's your take on building a Ray Dalio like all weather portfolio now for me as a newbie given the looming recession. I have 10 to 15k to invest now. Love your videos. Thanks
Javier Sanchez in stock markets I'll stack cash as much as I can,you can look at businesses and real estate,while you build cash for the stocks
Altria $MO
Great video Phil! I'm looking forward to the next recession so I can pick up some great stocks for a bargain!
FCAU, SIG, GIII are selling pretty well and are good companies, up to me, off course.
What is the free cash flow for FCAU?
@@jawadshuaib Hi Jawad, Look at the 10K document of the company. Anyway FCAU has a good cash flow, it has a low debit also in comparison with FORD, GM and Toyota. ...and it's results in US are very good. Moreover it's sold at a very good price. I suggest you to make your analysis to evaluate it from your point of view.
Francesco Guarnaccia thanks for the reply
Loved the video Phil
Thank you for watching, Vandit!
Thanks for this great short cut Phil :) If you look at GrafTech International (EAF) - it's priced even better than a 10 cap right now.
Great pick, I own it. It's a price to FCF of about 4.5 - 5.25 depending on full year free cash and trades at about 7.5 times if you include net debt. In 3-5 years the majority of cash will come back through contracted earnings. If the bull case doesn't play out, then there is a low probability of loosing your principal. If it does play out, then it is definitely a multi bagger and trying to figure out how/when to exit will become our predicament.
Thank you, Mr Town!
This all sounds good but must be nonsense... As of March 2020, following this rule, Apple would need to sell off by 64% to reach this price (around $40) (so I call bull on the fact that Apple was a Ten cap when you bought into it) and for a firm like Visa, that would be a sell off of around 70% to come down to the $71 needed and that's even being generous and using 2019 FCF. Chipotle would need to sell off a whopping 93% to reach the price recommended of around $103 and at this point if a stock falls by these numbers then you're not really investing, you're betting on distressed assets let's be real.
I believe micron is one of those companies. ($MU) the p/e ratio is 5 and is making so much on ROE. Eventhough it went down due to global trade issues, im still optimistic. What do u think?
Micron has industry secular tailwinds, has oligopolistic nature (a big thing people miss that can add a lot of value) that may take some time to prove out and management is retiring shares. It is fairly attractive. I bought at average cost of $35. I did speculate and sell half at $50 to try and buy more. I'm optimistic that the price will keep falling. Correlation of events in the past don't necessarily align with the present but industry capex shows earnings bottoming early/mid next year and stock price has lagged that roughly 6 months or so. I'm hoping towards the end of this year and into next year I can buy more. With any luck it'll go under $33. The stock shouldn't trade there and it should not have gotten as cheap as it did, gotta love how much animal spirits play into it. I'm very bullish over the long term but hoping for better pricing in the short term.
free cash flow per share (14.68) x10 = 145, so this is the price to pay? it sells at the moment for 43, so it would be very cheap
@@gintonik6208 No, not sure where you got those numbers.
Market cap of 48 billion less net cash of about 3 billion means your paying about 45 billion.
Currently it has FCF of about 3.3 billion or 4 billion adjusted ($2.95-3.55 per share).
With cyclicals, you have to try and normalize cash flows through a cycle. You also may want to consider if you think the oligopoly will play out which will mean less of peaks and troughs. There is also buybacks and growth to consider.
Not everything can always be valued simply as a 10 cap. Something growing rapidly at 40% sustainable at a 10 cap vs something fading away at a 10 cap are very different things.
@@sc358. Do you look at the Levered Free Cash Flow when making these calculations? I believe the OP took the numbers from finance.yahoo.com/quote/MU/key-statistics?p=MU
Thanks for the insight!
@@jawadshuaib SEC Edgar. I look directly at the annual and quarterly reports.
Kinda anywhere is fine to get numbers at first when your initially looking but if it passes initial screens you verify with the actual filings. If it's another country, then it's also a good idea to check their home filings to make sure they match. There were plenty of Chinese companies for example overstating their earnings, by a lot in the US filings compared to theirs.
I don't get it... AAPL Free Cash Flow 58,245,000 x10 . How does that mean it's on Sale? Please explain. At what stock price?
Divide by the number of shares outstanding for a per share price. I believe it is around $171 last time I ran the numbers.
These numbers are in the billions: and I used Apples 2018 annual report for the numbers.
Free Cash Flow = $64,121
Free Cash Flow in 10 years = $641,210
Market Cap = Share Price $220.82 x Outstanding shares 4571 = $1,009,368
Current Yield = $64,121/$1,009,368 = 6.35%
The Price you would need to pay per share for this to be a 10cap = $641,210/4571 =$140.28
So Apple is not a 10Cap Stock at the moment. It is a 15.7 Cap stock. 6.35% ain't horrible though as that would be 1.85x your money in 10 years.
A 10Cap stock returns 10% per year, which is 259% at the end of 10 years, which = 2.59x your money.
@@matt9060 Thanks for the explanation!!! I understand where you got the free cash flow from in the 2018 report [Subtracted the cash generated by operating activities (77,434) from the Payments from acquisition of property, plant and equipment (13,313). Where did you get your Share Price of $220.82 and Outstanding Share of 4571 from? Thanks.
@@hartmanmadu6017 So the share price came from the time I looked at it. Currently it is $227.01. You can simply google the share price or use any of your favorite websites, or your brokerages quotes. As for the outstanding shares, I used their 10-Q report and I got the number under the section, "Shares used in computing earnings per share: Basic" Edit: I was too lazy to mention I got this number from their most recent 10-Q report in my original comment.
Honestly though, it's easiest just to use morningstar's data as it's accurate and you get 10 years of data all at once.
financials.morningstar.com/income-statement/is.html?t=AAPL®ion=usa&culture=en-US&platform=sal
@@matt9060 Thanks for further explaining where you acquired the data for your calculations! Really appreciate it! Maybe you should start a youtube channel on investing!
Actually my client told me to purchase shares in shopify when it was at $300 a share... not it is at $1000 a share.... guess I screwed up slightly haha
Half off is great. That's almost 50 percent!
Check The Navigator Company. It is a portuguese company that is one of the biggest producers of paper in the world. I think it is close to tencap.
i did invest some money in ALTRI Stock that produces paper too.
@@dinheirolivre-fernandoalme567 I didn't analyse ALTRI very thoroughly but it should be a good investment as well
@@jonaspereira007 yeah i bought it mainly because of dividends to be honest, will see where its going
@@dinheirolivre-fernandoalme567 also like high dividends. I also bought NOS. They have a good dividend as well
Verizon (granted its debt is high). Burford (litigation finance company due to it's counter cyclical nature of business)
When applying this idea to stock investing I would calculate the owner earnings per share, then multiply that by 10 to determine the price I should look at buying saod stock at. Is that correct?
that sounds like a brilliant and easy way to calculate I am curious to see how that would pan out.
THANKS UNCLE PHIL
Phil, just watched and wanted to know if AT&T is a 10k at its present price.
What about taxes on real estate? You didn't include it in your equation?