Cheat sheet for investment lingo
plus one stock I am watching 👀
Ciao,
the feedback from the first issue of the newsletter was more and much better than I ever thought!
The most recurrent ideas/ complaints were:
why not in English?
why not a mid-of-the-month issue with topics outside of your portfolio?
So here I am, writing in English a mid-month issue with topics outside of my portfolio. Also, I have translated the January 24 portfolio update into English, find it here.
🧾 the cheat sheet
Have you ever found yourself scratching your head wondering what TTM or EPS or DPS means? Years ago I was in the same situation and so I thought of putting together a cheat sheet so that you never have to feel overwhelmed if someone throws at you some finance lingo. Also, when I write I often use these terms just because it’s faster. I kept it to the essential that everyone must know.
I put the cheat sheet on my Substack under a section called “Tools”. In the future, I’ll put there other resources or guides to websites that helped me in the years doing my research. I hope these resources can help you, too!
—> You can download a PDF version of the cheat sheet by clicking here <—
….or you can just have a read below.
🧮 Valuation
Market Cap (Market Capitalization): If you wanted to buy all the shares of the company, the market cap is how much it would cost you. It's calculated by multiplying the current share price by the total number of shares outstanding.
EV (Enterprise Value): Think of this as the total price tag to buy out a company, not just its shares but also taking over its debts, and then you get to keep any cash it has. It’s like buying a house (the company) where you take over the mortgage (debt) but also get whatever is in the savings account (cash).
P/E (Price-to-Earnings Ratio): This compares a company's share price to its earnings per share. It's like comparing the price of something you want to buy to how much money it can make you, to see if it’s a good deal.
IPO (Initial Public Offering): It's when a company sells its shares to the public for the first time. This move allows us everyday investors to own a piece of the company, and in turn, the company gets more money to grow its business.
🤑 Profitability
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): It shows how much money a company makes from its business operations, ignoring some extra stuff like how it handles its loans, taxes, and costs that don’t involve cash right away.
EBIT (Earnings Before Interest and Taxes): It shows how much profit a company makes from its operations before paying interest on debt and taxes.
FCF (Free Cash Flow): This is the cash a company generates after it pays for running its business and investing in growth. It's like your paycheck after you pay for necessities; it’s free for you to spend or save.
EPS (Earnings Per Share): This shows how much money a company makes for each share of its stock. It helps investors see how profitable a company is on a per-share basis.
🧵 General terms
CAGR (Compound Annual Growth Rate): This shows how much an investment grows each year over a period of time, on average. It smooths out the growth rate as if it were steady every year, making it easier to compare the growth of different investments.
TTM (Trailing Twelve Months): This term is used to describe financial data that covers the past 12 consecutive months. It can be used to estimate the yearly financial performance without having to wait for annual reports.
NTM (Next Twelve Months): It's a term used to refer to projections, estimates, or performance metrics that are expected over the upcoming 12-month period.
Rev (Revenue): This is the total amount of money a company makes from selling its goods or services before any expenses are taken out.
Beta: It measures how much a stock's price is expected to move compared to the market as a whole. If bigger than 1 the stock is more volatile than the market, if beta less than 1 means it's less volatile.
ATH (All-Time-High): when a stock (or any asset) reaches its highest price or value in history
👀 One stock I am watching
What: Alibaba
Why am I watching: Alibaba is now trading 22% below IPO price. To put it in context its IPO was in 2014 when the company was making $12BN in sales while today the company makes about $128BN in sales, that is 10x more for a lower valuation. In terms of profitability and growth the company had a few rough quarters in 2022 but the company made a comeback and has grown its FCFs near to ATH. Normally, price follows cash flows here it doesn’t, which means the company is potentially undervalued. See chart below, bars are quarterly FCF, line is the price.
Why didn’t I buy yet: to state the obvious this is a Chinese stock, i.e. based in a risky country that is not a free market, this can have a huge impact as we have seen times and times in the past. Plus, the Chinese economy is not in good shape right now.
And that's it! Please let me know if you liked it, what I can improve, and if you think this newsletter could help a friend, please send it to them!
Federico
Please remember that everything written in this newsletter/website is for educational purposes only and should not be interpreted as financial, legal, or tax advice. The opinions, analyses, information, or recommendations expressed here are solely my own. Remember that financial decisions involve risks and should be made based on your own personal circumstances and after consulting a qualified professional.