The net current asset value per share (otherwise known as the NCAVPS) is the lesser used younger brother to the net asset value per share in regards to the fact that it is an investment ratio which aids investors find potentially undervalued stocks. This formula was created by professor Benjamin Graham in the mid-twentieth century to determine if a company was trading at a fair market price
The major difference between the net current asset value per share and the net asset value per share is that instead of using the value of total assets it uses only current assets. Using only current assets is a much more aggressive approach, as there are not too many companies around whose current assets exceed their total liabilities.
To understand this ratio, let’s have a look at Qingling Motors
The basic formula is current liabilities minus total assets and then divide that by the number of shares outstanding:
As we can see the total assets come to 8,380.59 million CNY and the total liabilities 2,337.39 million CNY. The number of shares outstanding are 2,482.27 million. This is all the information we need to work out the net current asset value per share:
8,380.59 – 2,337.39 = 6,043.20
6,043.20 / 2,482.27 = 2.43 CNY
According to Graham, investors will benefit greatly if they invest in companies where the stock prices are no more than 67% of their NCAVPS. Today’s share price of Qingling Motors is 2.49 HKD which when convert to CNY comes to 2.10 CNY (yes, Qingling is one of those annoying companies whose reporting currency doesn’t match their share price currency).
To see if their NCAVPS is within Graham’s 67% we minus the share price by the NCAVPS, then divide that by the NCAVPS. In this example the share price is already below the NCAVPS so we know that it does indeed match Graham’s requirement
A study done by the State University of New York to prove the effectiveness of this strategy showed that from the period of 1970 to 1983 an investor could have earned an average return of 29.4%, by purchasing stocks that fulfilled Graham’s requirement and holding them for one year. Of course the investing landscape was a lot different back then but the principal does remain the same. Graham did make it clear that not all stocks chosen in this manner will have excessive returns, and that investors should also diversify their holdings when using this strategy.
So how to we go about finding these companies? Fortunately the Robur Terminal does have a NCAVPS filter option. Below is a snapshot of some of the companies is found applying this filter: