Good Companies with low P/E

Two days ago, I have compiled Company listed in BURSA with ROE > 20% and Low Debt.There are a total of 14 companies in the list. And, this list is a subset of company listed in bursa with ROE > 20%.  which consists of 72 companies.

As explained in the said article, a company able to achieve high ROE from 3 appraoches as introduced by DuPont Analysis:-

1. Higher Net Profit Margin
2. Higher Asset Turn Over
3. Increase Financial Leverage

There is no doubt that the companies that show in my previous list which achive high ROE by high net profit margin \ asset turn over and low fiancial leverage are definitely a candidate for a good companies. So, should we invest in those good companies? But, wait a minute. This might not be a good investment options.

A good company has to be a good investment, doesn't it?  After all, Warren Buffett focuses on good companies and he's a billionaire. So it follows that good companies have to be good investments.

Or do they?

Buffett has become a billionaire not because he is just buying good companies, but because he is buying good companies at a discount to intrinsic value. That is, it all depends on what price one pays. There is valuation risk no matter what kind of investment one makes.

Mr Chong did mentioned in his article that Investment success doesn’t come from “buying good things,” but rather from “buying things well.”  A simple metric used to carry out “buying things well” is to compute the price-earnings ratio (PE) of a stock. A low PE say at less than 10 may signify that the stock is cheap.

Owing to this, I further fine tune my list to find a good companies which is relatively cheap (P/E < = 15). 

	Code	Name	ROE%	ROTA%	Leverage	P/E	Close Price	F.Y.
1	7231	WELLCAL	29.67	25.17	1.18	1.67	1.5	30/09/13
2	5204	PRESBHD	43.39	35.81	1.22	2.23	1.8	31/12/13
3	5168	HARTA	30.55	24.82	1.23	2.93	5.92	31/03/13
4	0008	WILLOW	22.55	18.52	1.22	3.17	0.81	31/12/13
5	7100	UCHITEC	20.47	17.87	1.15	6.66	1.44	31/12/13
6	0099	SCICOM	21.06	19.13	1.10	8.55	1.04	30/06/13
7	5131	ZHULIAN	24	21.71	1.11	9.58	2.71	30/11/13
8	0113	MMSV	22.24	18.77	1.19	12.96	0.21	31/12/13
9	6769	KELADI	21.74	19.92	1.06	15.20	0.33	31/01/13

And,  please don't get me wrong. This is not the final list yet as a thorough analysis need to be carried out to further examine the companies in the list.

"An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."  - Benjamin Graham

 

References:-

• DuPont Analysis - Dissecting ROE 
• 5 step DuPont Equation 
• Warren Buffet's Style
• Investing in Bursa: Have the cake and eat it kcchongnz