Living in an insane world

I am not supposed to forward funda reports from this particular group that I subscribe to , this is just to show an example of the insanity that is our world.
No offense to group owner, I know he doesn't moderate reports. He is involved in a charitable cause to forward reports so everyone can share their info/views in one forum. People who read the reports are supposed to use their own brains. This is just a bad quality report and one has to see the bad to find the good sometimes. I am making an example out of the bad report so people can understand what a good report looks like.
Refer to my previous post on aftek to see what a true value buy looks like. Granted its a different sector, diff size company but learn the gist, the purpose of p.e/earnings yield/roe/roa/roce etc and adjust risk premiums based on either historic earnings volatility or stock volatility etc.
If you need a good book read something by or something on Graham/Buffet etc.

Sample report which makes no sense to me. This is an example of dressing up a wolf in sheep's clothing and saying come sheep hug this other sheep.
Investors are a bit like sheep. They are usually afraid of the wolves in the market so they look to technical+funda analysts/reports/news for guidance.
In this world of fast food everyone wants a quick fix, hardly anyone takes the time to learn the tools of the trade, proper technicals (trend, dips, channels overbought/oversold, targets/retracements, pullbacks, breakout after pullback)
proper fundamentals.
P.E
P.E.G
ROCE.
ROE

read my old post on canslim
on my other blog niftytraders.blogspot.com

So here is the report and my critique of it read on only if you are bored. When I get annoyed i blabber.
Please find attached our 4QFY07 Result Update on IDFC.
The key highlights are:
· IDFC has reported a net profit growth of 15.7% y-o-y to Rs 851 mn for the quarter ended March 2007. The result were inline with our estimates at the top line but was below our estimates at bottom line mainly due to higher than expected operating and provisioning expenditure.
· IDFC has posted a strong balance sheet growth of 50% y-o-y to Rs 179.8 bn. During FY07, incremental gross approvals & disbursements increased by 23% & 19% to Rs 130.5 bn and Rs 72.1 bn, respectively.
· The Board has approved a plan to raise capital through issue of equity or quasi-equity instruments upto USD 500 mn equivalent INR over next 18 months period to fund balance sheet growth, meet regulatory norms and to increase its seed capital in the asset management business.
Valuations
At the current market price of Rs 104, the stock is trading at 20.6x FY08E and 18.2x FY09E earnings. On P/AB, the stock is trading at 3.6x FY08E and 3.1x FY09E adjusted book value. We reiterate our "Buy" recommendation based on FY09E adjusted book value.

Why is idfc a buy?? why should it be worth so much??
why 3.1x book or higher
why fy08/fy09 adjusted book and what not
What is cagr for next 5 years.
P.s if cagr for next 5 years is > 30% then fine the levels this report talks about are fine

When people start talking about fy08/fy09 valuations
I worry, is the report trying to prove that its cheap on fy08/fy09 valuations?
Or is it at target fy08/fy09 valuations?
What is the peer group??
Can you give me other stocks in the same sector and show me a comparison to justify valuations?

Why can't i put my money in a value pick
or a growth pick? is IDFC A value pick or a growth pick?? IF its a growth pick why is the p.e.g over 1? why can't i buy growth at value levels i.e p.e.g of < 1

TCS is avaialable for p.e.g if <1 why can't i buy tcs??
why do i have to pay p.e.g of > 1 for idfc??

Now i am doing this because I don't follow banks , the ideal comparison would be with a financial institution only and not with tcs.
The point is fy08/fy09 valuations DRIVE ME CRAZY
IF WE ARE BUYING AT 20x FY09 , YIELD ON INVESTMENT OVER 2 YEARS is < 5% with god knows how much risk. Maybe i don't know the abcs of funda investing, BUt if stock is growing at 16%
WHY WOULD I PAY MORE THAN 16X TRAILING OR 16x 1 year forward?
FAT CHANCE OF ME PAYING 20x forward
Why would I buy for 3-4x book?? Why not 0.8x or 1.6x book??
If I wanted to purchase this company outright how much would it cost me?
If I was a billionaire who could purchase this company outright and run it, would I buy this?? Is the return on investment justified??
Would the person who wrote this report, invest his life savings in this company?
Or are this analyst and his associates already long and looking for an exit?


If stock is trading at 20.6 fy08e and 18.2fy09e
@ 104 rs then fy08e is 5
and fy09e is 5.7

Current eps is 4.2
5/4.2= 19% growth
5.7/5= 14% growth
my common sense p.eg system tells me if stock is growing at 20%
then I will buy at 20% trailing earnings

NOT 20x FORWARD EARNINGS

concrete case
tcs 1260
42 eps TRAILING , FORWARD IS 52-55!!!
30% cagr
I will buy at 30*42
NOT AT 55*30, THAT IS NEXT YEAR's TARGET

Fundamental analysts and technical analysts sometimes use a lot of mumbo jumbo to confuse poor investors. Same way that technical analysts tote breakout buying. Pullback buying has returns superior to buying breakouts but no one talks about buying dips or quantifying dips.
Read alexander elder for learning how to trade dips

READ THIS CRITIQUE , tell me if you disagree
Maybe I don't know my fundas , maybe i am the idiot.
I am always interested in learning a new trick or two.
But please SOMEONE show me why idfc is a BUY at 97 @ 18x fy09 earnings when growth rate is less than 18% per year.
What is the return on investment over 1-2-3 year timeframes.
What is the downside risk?
What is the reward?
Is there a 'fundamental trade' i.e buy setup here.
Leave your comments in the comment section.