Best Ideas Portfolio
Question About the September Best Ideas Newsletter
publication date: Sep 21, 2014
author/source: Valuentum Analysts
Q: I'm curious - how does BWLD go from a Valuentum 6 rating to a 3 with no earnings in the interim and price movement to the downside in the ensuing 30 day period? Was there a calculation error?
Thank you for the question.
The Valuentum Buying Index is not a step function tool (e.g. the score moves from 3 to 4 to 5). The Valuentum Buying Index considers a discounted cash flow process, a relative valuation process, and a technical/momentum assessment. It has components of both a value-based system and a momentum-based system. Any one of these parameters can influence a change in the rating, so there are a number of variables that can cause a multiple notch move higher or lower.
For example, if a company's valuation and technicals deteriorate at the same time, the firm's score could move a number of notches lower (from a 7 to a 3, for example). In the case of Buffalo Wild Wings (BWLD), the firm is currently fairly valued on a DCF basis (it falls within the fair value range), unattractive on a relative valuation basis (its PE and PEG ratios are less attractive than those of the median of its peer group) and overall has a bearish technical evaluation.
According to the flow chart for the VBI, this results in a score of a 3. You are correct in that it was a 6 in the previous update. A move from a bullish assessment in the technicals to a bearish assessment in this case was the primary determinant for the move from a 6 to a 3.
VBI flow chart: http://www.valuentum.com/downloads/20110702/download
About the VBI: http://www.valuentum.com/articles/20110622
In the case of holdings in the Best Ideas portfolio, we tend to add them to the portfolio when they register a high rating of a 9 or 10 (in most cases) and hold them until they register a 1 or 2 (in most cases). We may make tactical changes as portfolio management and broader market considerations dictate.
The methodology document in pdf form can be downloaded below. In the document, please pay particularly close attention to how the Valuentum Buying Index is applied within the context of the Best Ideas portfolio.
If you have any further questions about the VBI, please contact us at +1 (708) 653-7546.