Is ALI fundamentally and technically sound to buy based on their March 2020 financial report and current price?

Ayala Land, Inc. (ALI) was formerly the real estate division of Ayala Corporation (AC) and was incorporated on June 30, 1988 to focus on the development of its existing real estate assets. In July 1991, the Company became publicly-listed through an initial public offering of its primary and secondary shares on the Makati and Manila Stock Exchanges.

ALI is engaged in the planning and development of large scale, integrated estates having a mix of use for the sale of residential lots and buildings, office buildings and commercial and industrial lots, leasing of commercial and office spaces and the development, operation and management of hotels and resorts. The Company also develops commercial and industrial parks and is also engaged in property management, construction and other businesses like retail and healthcare. 

Among the Company's subsidiaries are Alveo Land Corporation; Avida Land Corporation; Ayala Property Management Corporation; Makati Development Corporation; North Triangle Depot Commercial Corporation; Laguna Technopark, Inc.; and Ten Knots Philippines, Inc.

As of July 17, 2020, ALI was last traded at 31.7php per share, down by 3.65% from the previous trading. What valuation can we get from their March 2020 quarterly report?

Trailing P/E: 31.7/2.25= 14 Indicating that for every 1php income last 2019, investors are willing to pay or is paying 14php. It is said that an overvalued company would be the one trading at a rate that’s 50 times earnings, or this could be a gauge on how optimistic are investors on this company. A lower P/E may imply low in optimism perhaps due to lower expectation on future earning, or news i.e pandemic that greatly impact investor optimism. 

For a growth rate of 13.6% change in EPS from 2018 to 2019, the PEG ratio would be 14/13.6=1 meaning, investors are paying 14php relative to the growth rate of 13.6% from 2018 to 2019. A PEG ratio of less than 1 is usually considered undervalued, in this case, the market price seems to be just right relative to growth rate 

Price to Book Value per share (P/B) = 31.7/16.39= 1.9, meaning, the current market price per share is around 1.9 times higher compare to the real worth of the company as based on their March 2020 financial report. A P/B of less than 3 is potentially undervalued.

However, due to pandemic, their first 3 months net income dropped by 41%, still fundamentally, based on the parameters above, this share seems to be a good buy. 

However technically, the MACD seems to indicate a bearish momentum. RSI also continues to move to an oversold level. If I’m to buy this share, I’ll wait few more trade to see whether the momentum has a sign of reversal to bullish mode.

Disclaimer: Trade or invest at your own risk.

MACD and RSI indicator of MEG Share as of Yesterday

Above is the latest MEG graph. As of yesterday's trading, MEG closed at 3php.

As you can see, for the 6 consecutive tradings, the market price keeps dropping causing the signal line to cross MACD line signaling a selling point, while RSI is in the direction of getting oversold.

What does this entail? Technically, MACD is still in the bullish trend as it still above zero lines, but the direction of its momentum seems to be going down along with the RSI getting oversold. In the next few days, we might see a bounce back.

I’m waiting for the RSI to reach a point of at least 40, I might accumulate more of this. 

My confidence stems from its fundamentals. Based on the market price yesterday.

Price to book value = 0.5 (based on 2019 annual report) Indicating that the current price is half the value of the real worth of the company.

Trailing P/E = 5.5 Indicating that for every 1php income last 2019, investors are willing to 5.5php, usually, this could indicate that the stock is either losing its popularity or undervalued, my bet is the latter.

Trailing PEG Ratio = 0.3 Indicating that for a growth rate of 17.3% (change in EPS from 2018 to 2019), investors are willing to pay 5.5php for every 1php income last 2019. Stocks like this are usually fundamentally undervalued. Typically, you should be willing to pay for every peso income more than the growth rate, but this share seems to indicate otherwise, thus undervalued.

Disclaimer: Trade or invest at your own risk.

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