A Look Behind What’s Driving Earnings For: IP Group Plc (LSE:IPO), Versarien plc (AIM:VRS)

In taking a look at some key indicators for IP Group Plc (LSE:IPO), we note that the current Book to Market value for the firm is at 1.635508. The Book to Market or BTM is calculated as Market Value (or Stock Price)/Book Value. Investors often look for shares with high Book to Market value as this could indicate that the equity is priced below market value and underpriced.

A ratio of a publicly-traded company’s book value to its market value. That is, the BTM is a comparison of a company’s net asset value per share to its share price. This is a useful tool to help determine how the market prices a company relative to its actual worth. A ratio greater than one indicates an undervalued company, while a ratio less than one means a company is overvalued. Value managers seek out companies with high BTMs for their portfolios.

Traders often key in on technical support and resistance levels when undertaking stock analysis. These levels can play an important role on a day to day basis. Many traders and investors will carefully monitor different support and resistance levels in order to gauge stock price movement. Investors may also be tracking stock price momentum. Sometimes investors may be hesitant to jump into the market after it has consistently kept heading higher over a sustained period of time. However, there may also be ample evidence that the market may just keep going higher. Markets that make new highs may have the ability to make even higher highs, thus leading to further gains. Often times, investors may be looking at technical indicators to help define trend conditions. Generally speaking, strong momentum is typically spotted near the beginning of a trend. On the flip side, momentum tends to be weaker as the trend is ending and possibly about to reverse direction. 

Additional Tools

There are many different tools to determine whether a company is profitable or not.  One of the most popular ratios is the “Return on Assets” (aka ROA).  This score indicates how profitable a company is relative to its total assets.  The Return on Assets for IP Group Plc (LSE:IPO) is -0.177020.  This number is calculated by dividing net income after tax by the company’s total assets.  A company that manages their assets well will have a higher return, while a company that manages their assets poorly will have a lower return.

Looking at some ROIC (Return on Invested Capital) numbers, IP Group Plc (LSE:IPO)’s ROIC is -0.075240. The ROIC 5 year average is 0.136945 and the ROIC Quality ratio is 1.122148. ROIC is a profitability ratio that measures the return that an investment generates for those providing capital. ROIC helps show how efficient a firm is at turning capital into profits. 

In terms of EBITDA Yield, IP Group Plc (LSE:IPO) currently has a value of -0.110015. This value is derived by dividing EBITDA by Enterprise Value.

The Current Ratio of IP Group Plc (LSE:IPO) is 7.07. The Current Ratio is used by investors to determine whether a company can pay short term and long term debts. The current ratio looks at all the liquid and non-liquid assets compared to the company’s total current liabilities. A high current ratio indicates that the company might have trouble managing their working capital. A low current ratio (when the current liabilities are higher than the current assets) indicates that the company may have trouble paying their short term obligations.

The Leverage Ratio of IP Group Plc (LSE:IPO) is 0.079657. Leverage ratio is the total debt of a company divided by total assets of the current and past year divided by two. Companies take on debt to finance their day to day operations. The leverage ratio can measure how much of a company’s capital comes from debt. With this ratio, investors can better estimate how well a company will be able to pay their long and short term financial obligations.

Piotroski F Score

The Piotroski F-Score is a scoring system between 1-9 that determines a firm’s financial strength. The score helps determine if a company’s stock is valuable or not. The Piotroski F-Score of IP Group Plc (LSE:IPO) is 2. A score of nine indicates a high value stock, while a score of one indicates a low value stock. The score is calculated by the return on assets (ROA), Cash flow return on assets (CFROA), change in return of assets, and quality of earnings. It is also calculated by a change in gearing or leverage, liquidity, and change in shares in issue. The score is also determined by change in gross margin and change in asset turnover.

Checking in on some valuation rankings, IP Group Plc (LSE:IPO) has a Value Composite score of 78. Developed by James O’Shaughnessy, the VC score uses five valuation ratios. These ratios are price to earnings, price to cash flow, EBITDA to EV, price to book value, and price to sales. The VC is displayed as a number between 1 and 100. In general, a company with a score closer to 0 would be seen as undervalued, and a score closer to 100 would indicate an overvalued company. Adding a sixth ratio, shareholder yield, we can view the Value Composite 2 score which is currently sitting at 77.

Volatility/C Score

Stock volatility is a percentage that indicates whether a stock is a desirable purchase.  Investors look at the Volatility 12m to determine if a company has a low volatility percentage or not over the course of a year.  The Volatility 12m of IP Group Plc (LSE:IPO) is 37.686700.  This is calculated by taking weekly log normal returns and standard deviation of the share price over one year annualized.  The lower the number, a company is thought to have low volatility.  The Volatility 3m is a similar percentage determined by the daily log normal returns and standard deviation of the share price over 3 months.  The Volatility 3m of IP Group Plc (LSE:IPO) is 36.325100.  The Volatility 6m is the same, except measured over the course of six months.  The Volatility 6m is 35.330500.

IP Group Plc (LSE:IPO) currently has a Montier C-score of -1.00000. This indicator was developed by James Montier in an attempt to identify firms that were cooking the books in order to appear better on paper. The score ranges from zero to six where a 0 would indicate no evidence of book cooking, and a 6 would indicate a high likelihood. A C-score of -1 would indicate that there is not enough information available to calculate the score. Montier used six inputs in the calculation. These inputs included a growing difference between net income and cash flow from operations, increasing receivable days, growing day’s sales of inventory, increasing other current assets, decrease in depreciation relative to gross property plant and equipment, and high total asset growth.

Investors often have to decide whether to follow the crowd or go against the herd. This can be difficult considering all the different market factors in play. Investors who strictly follow the technical charts may be missing the other half of the picture involving company fundamentals. On the other hand, investors who only look at fundamentals may be missing key information presented by studying the numbers. Combining both techniques may prove to be a solid option for researching the equity market. Many investors will opt to pick certain stocks based on fundamental analysis, and then use technical charts to figure out the proper time to make a move.

Here we will take a look at several key ratios for Versarien plc (AIM:VRS), starting with the Book to Market (BTM) ratio. Value investors seek stocks with high BTMs for their portfolios.  The ratio is a comparison of the firm’s net asset value per share to it’s current price.  This is helpful in determining how the market values the company compared to it’s actual worth.  The Book to Market value of Versarien plc currently stands at 0.078216.

As any seasoned investor knows, trading stocks can be both exiting and scary. Figuring out how to profit in the market may take a lot of time and dedication. Many novice investors may jump into the markets without any kind of research. Some people may prefer to let professionals deal with their investments. With so much available information, investors may need to find out how to separate the important data from the unimportant data. As we move further into the second half of the year, investors are most likely monitoring market momentum to try and figure out how stocks will finish the year. With the stock market still trading at high levels, investors may be looking for certain stocks that still have room to move higher. Finding these stocks may be tricky, but doing the necessary research may help spot some names that will make a positive impact on the future of the portfolio. 

In terms of EBITDA Yield, Versarien plc (AIM:VRS) currently has a value of -0.006051. This value is derived by dividing EBITDA by Enterprise Value.

Versarien plc (AIM:VRS) presently has a current ratio of 3.26. The current ratio, also known as the working capital ratio, is a liquidity ratio that displays the proportion of current assets of a business relative to the current liabilities. The ratio is simply calculated by dividing current liabilities by current assets. The ratio may be used to provide an idea of the ability of a certain company to pay back its liabilities with assets. Typically, the higher the current ratio the better, as the company may be more capable of paying back its obligations.

The Price to book ratio is the current share price of a company divided by the book value per share.  The Price to Book ratio for Versarien plc AIM:VRS is 12.785074.  A lower price to book ratio indicates that the stock might be undervalued.  Similarly, Price to cash flow ratio is another helpful ratio in determining a company’s value.  The Price to Cash Flow for Versarien plc (AIM:VRS) is -90.904898.  This ratio is calculated by dividing the market value of a company by cash from operating activities.  Additionally, the price to earnings ratio is another popular way for analysts and investors to determine a company’s profitability.  The price to earnings ratio for Versarien plc (AIM:VRS) is -121.616937. This ratio is found by taking the current share price and dividing by earnings per share.

Looking at some ROIC (Return on Invested Capital) numbers, Versarien plc (AIM:VRS)’s ROIC is -0.243322. The ROIC 5 year average is -0.288092 and the ROIC Quality ratio is -1.162828. ROIC is a profitability ratio that measures the return that an investment generates for those providing capital. ROIC helps show how efficient a firm is at turning capital into profits. 

Free Cash Flow Growth (FCF Growth) is the free cash flow of the current year minus the free cash flow from the previous year, divided by last year’s free cash flow.  The FCF Growth of Versarien plc (AIM:VRS) is 0.241024.  Free cash flow (FCF) is the cash produced by the company minus capital expenditure.  This cash is what a company uses to meet its financial obligations, such as making payments on debt or to pay out dividends.  The Free Cash Flow Score (FCF Score) is a helpful tool in calculating the free cash flow growth with free cash flow stability – this gives investors the overall quality of the free cash flow.  The FCF Score of Versarien plc (AIM:VRS) is 0.900593.  Experts say the higher the value, the better, as it means that the free cash flow is high, or the variability of free cash flow is low or both.

The Gross Margin Score is calculated by looking at the Gross Margin and the overall stability of the company over the course of 8 years.  The score is a number between one and one hundred (1 being best and 100 being the worst).  The Gross Margin Score of Versarien plc (AIM:VRS) is 50.00000.  The more stable the company, the lower the score.  If a company is less stable over the course of time, they will have a higher score.

At the time of writing, Versarien plc (AIM:VRS) has a Piotroski F-Score of 4. The F-Score may help discover companies with strengthening balance sheets. The score may also be used to spot the weak performers. Joseph Piotroski developed the F-Score which employs nine different variables based on the company financial statement. A single point is assigned to each test that a stock passes. Typically, a stock scoring an 8 or 9 would be seen as strong. On the other end, a stock with a score from 0-2 would be viewed as weak.

Shifting gears, we can see that Versarien plc (AIM:VRS) has a Q.i. Value of 62.00000. The Q.i. Value ranks companies using four ratios. These ratios consist of EBITDA Yield, FCF Yield, Liquidity, and Earnings Yield. The purpose of the Q.i. Value is to help identify companies that are the most undervalued. Typically, the lower the value, the more undervalued the company tends to be.

Watching some historical volatility numbers on shares of Versarien plc (AIM:VRS), we can see that the 12 month volatility is presently 61.973700. The 6 month volatility is 71.100700, and the 3 month is spotted at 56.581100. Following volatility data can help measure how much the stock price has fluctuated over the specified time period. Although past volatility action may help project future stock volatility, it may also be vastly different when taking into account other factors that may be driving price action during the measured time period.

Many investors rely on technical analysis when making market decisions. Technical analysis enables investors to examine previous market activity to try and predict future stock price movement. Stock prices often move in trends that can be observed. A trend may remain in place until a specific technical line is breached. Many traders will develop strategies based on defined trends. Some investors will develop opposite strategies that tend to go against the trend. Many technical chart watchers are interested in finding patterns that may repeat in the future. Repetitive price movements have been studied for a long time. Investors may choose to develop highly complex systems for trading equities, while others may choose to follow simple trend lines to identify entry and exit points. Mastering the art of technical analysis may take a long time. Developing technical skills may be a very useful tool for the investor to add to the kit. 

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