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Strategies & Market Trends : Value Investing

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To: Grommit who wrote (56664)1/16/2016 3:08:49 PM
From: bruwin   of 72245
 
Another take on PSX with regard to Buffett's stock selection criteria as in the following table ...



Here we have info from the most recent 5 years of Annual financials :-

· Gross Profit at 14.8% way below >40% target. This is supported by EBITDA/Revenue margin of only 4.3%, which isn't great.

· SGA/Gross Profit only 7%, well below <30% requirement, so Salaries and company 'Running Expenses' not excessive.

· Interest Expense/EBIT only 4.4%, well below <15%, so company's debt not seriously reducing Revenue. However, debt cost to company has been creeping up slightly over recent years. Something to keep an eye on.

· Net Earnings/Revenue very low at 2.9% bearing in mind target of >20%. This is something of a surprise to see Buffett buying these shares with such a low Bottom Line return, which also doesn't do much to add to Retained Income on the Balance Sheet. This 2.9% is not surprising seeing as how much Revenue has been consumed prior to EBITDA.

· ROE of 22.1% is only slightly below >25%, but it has been improving over recent years, so it's a positive.

· Equity Bond of $291 with current share price at a 72% discount at $79.25c. Maybe this was one of the attractive features for Buffett to buy into PSX ?

So, from a business performance point of view, has PSX performed in line with what Buffett looks for ? It may be Ok in terms of lack of debt, ROE and discount to Equity Bond, but one has to wonder with regard to the very low percentage of Top Line Revenue that has reached the company's Bottom Line.

PSX appears to have found price support at ~$75. It's next resistance level is somewhere around $85.

Should be interesting to see if it goes through $85 and also goes past ~$93.
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