Business

Shenandoah Telecommunications Company (SHEN): Quant Investors Taking Note of the 0.259582 Gross Profitability Score

In thie piece we will review the quality ratios and quant metrics for shares of Shenandoah Telecommunications Company (SHEN). Avid investors might be interested in how the quality ratios are stacking up for the Telecommunication Services firm.  Robert Novy-Marx, a professor at the university of Rochester, discovered that gross profitability has as much power predicting stock returns as traditional value metrics. He found that while other quality measures had some predictive power, especially on small caps and in conjunction with value measures, gross profitability generates significant excess returns as a stand alone strategy, especially on large cap stocks.The Gross profitability for Shenandoah Telecommunications Company (SHEN) is 0.259582.

Tackling the stock market may involve many different aspects. Investors may at times feel like they are on a wild ride. Sometimes there are extreme highs, and sometimes there are extreme lows. Figuring out how to best deal with fluctuations can help the investor’s mindset. Investors who are able to keep their emotions in check might be one step ahead of the rest. Being able to identify emotional weaknesses can help the investor avoid tricky situations when things get hairy. Keeping the stock portfolio on the profitable side may involve making decisions that require emotional detachment. When emotions are running high, it may impair the rational decision making capability of the investor.

Key Stats

Shenandoah Telecommunications Company (SHEN) based out of United States and resides in the Telecommunication Services sector, has a market cap of 2118556.144 after recently touching 49.04 on a recent bid. Shenandoah Telecommunications Company (SHEN) sees an average of trading volume of 9220.8426. Shenandoah Telecommunications Company (SHEN) competes in the Wireless Telecommunication Services industry.

Investors are constantly on the lookout for that next great stock pick. Finding that particular stock that had been overlooked by the rest of the investing community can bring great satisfaction to the individual investor. Spotting these stocks may take a lot of time and effort, but the rewards may be well worth it. Knowledge is power, and this principle also translates over to the equity market. Investors who are able to dig a little bit deeper may be setting themselves up for much greater success in the long run. These days, investors have access to a wide range of information. Trying to filter out the important information can be a key factor in portfolio strength. Knowing what data to look for and how to trade that information is extremely important. Successful investors are typically able to focus their energy on the right information and then apply it to a trading strategy.

FCF Yield, PI & FScore
Free Cash Flow Yield (FCF Yield) 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 Shenandoah Telecommunications Company (SHEN) is 0.039527. 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. Looking out to the 5 year FCF yield, this gives investors the overall quality of the free cash flow over a longer period of time. The FCF five year yield for Shenandoah Telecommunications Company (SHEN) stands at 0.008846. 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 Price Index is a ratio that indicates the return of a share price over a past period. The price index of Shenandoah Telecommunications Company (SHEN) for last month was 1.050557 while the 3m is at 1.293541. This is calculated by taking the current share price and dividing by the share price at the specifiied time frame mentioned. If the ratio is greater than 1, then that means there has been an increase in price over that timeframe. If the ratio is less than 1, then we can determine that there has been a decrease in price. Similarly, investors look up the share price over 12 month periods. The Price Index 12m for Shenandoah Telecommunications Company (SHEN) is 1.542548. The Price Index 5Y stands at 4.297984. 

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 Shenandoah Telecommunications Company (SHEN) is 7.  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.

As most investors know, the stock market can be a highly volatile place. Investors often have to figure out a way that they can personally stay on track so they don’t veer of course. Sticking to a well-researched trading strategy may work for some people. Others may jump into the market head first without too much planning and hope to gain profits by learning as they go. The stock market learning curve may be vastly different for individuals depending on their circumstances and backgrounds. What’s good for one person may not be good for another. When the markets are rising steadily and running along smoothly, investors may feel like they can do no wrong when it comes to picking stocks. People who become overconfident in their abilities may be faced with a harsh reality when the market shifts and momentum builds to the downside. Investors who are prepared for any economic situation might be able to much better ride out the storm when the time comes.  

EBITDA/EV
This multiple is similar to Earnings Yield, but here we use Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as Nominator). By doing this, we can compare companies with a different capital structure and capital expenditures. This way it gives a much better idea of the value of a company compared to the popular P/E ratio. As O’Shaughnessy explaines:

” Stocks that have very high debt levels often have low PE ratios, but this does not necessarily mean that they are cheap in relation to other securities. Stocks that are highly leveraged tend to have far more volatile PE ratios than those that are not. A stock’s PE ratio is greatly affected by debt levels and tax rates, whereas EBITDA/EV is not. To compare valuations on a level playing field, you need to account for how a company is financing itself and then compare how relatively cheap or expensive it is after accounting for all balance sheet items.” – James P. O’Shaugnessy in What works on Wall Street

You can think of it as the taking all the revenue and subtracting the costs that solely go into running the business. The downside of EBITDA is that it can be abused by companies declaring as “one-off” costs things that should really be considered normal costs. We use the EBITDA of the last 12 months.

As denominator it uses Enterprise Value. The formula is as follows:

EBITDA/EV = EBITDA/Enterprise Value

EBITDA/EV has been identified in many academic studies as one of the most predictive valuation factors. Shenandoah Telecommunications Company (SHEN) has a EBITA/EV of 11.982578.

In the 4th edition of ‘What works on Wall Street’, O’Shaughnessy reported that in his backtests, EBITDA/EV earned the best absolute return over the testing period (1963-2009), unseating all other ratios examined, and doing this with a relatively low volatility.

Gray & Vogel found the EBITDA/EV to be the best performing metric, outperforming investor favorites such as Price-to-Earnings, Free Cashflow to EV and Book-to-Market in the period 1971-2010. They also found in contrast to prior empirical work, that long-term ratios add little investment value over standard one-year valuation metrics. The ERP5 Rank is an investment tool that analysts use to discover undervalued companies.  The ERP5 looks at the Price to Book ratio, Earnings Yield, ROIC and 5 year average ROIC.  The ERP5 of Shenandoah Telecommunications Company (SHEN) is 3607.  The lower the ERP5 rank, the more undervalued a company is believed to be. 

Some investors may succeed spectacularly in the market while others fail. There is an emotional component to trading and investing which can pose a big obstacle to trading success. Investors frequently try to optimize every decision for success, but sometimes things just don’t work out as planned. Consistently beating the market may involve heavy amounts of homework, and a necessary rebalancing of the portfolio. In fast paced markets, indecision can have a drastic impact. Investors may have all the bases covered but fail to make a trade based only on the fear of being wrong. Individual investors may need to conquer self-doubt in order to reach optimal performance when picking stocks. This may not come as easily for some as it does for others. When the market is winning, investors may become too complacent given the ease of gains. Staying on top of the investing scene even when everything is good may help to prepare if conditions change and the climate starts to worsen.

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