Fam Wencong, Kenneth

My Diary

Adding Lenovo To My Portfolio

Published: Sunday, February 16, 2020

Took the weekend to scout for stocks to add to my portfolio. Found Lenovo (0992.HK).

In their latest quarterly earnings release on November 7, 2019, they stated group revenue in the second quarter reached US$13.5 billion; the ninth consecutive, year-on-year quarter of growth.

Valuing Lenovo (0992.HK)

Lenovo reported Q2 EPS at US$0.169; an average yearly EPS of US$0.68. I will be using the Gordon Growth Model. I expect the perpetual growth rate of Lenovo’s EPS to be at 3%. This leads us to the formula below:

Fair Value=0.68/(0.08-0.03)

Target price of US$13.6 or HK$105.

It seems a little too undervalued to me. Sanity check ahead.

Instead, since Lenovo pays a dividend in Hong Kong dollars, let us use that instead.

Lenovo paid out HK$0.278 in 2019.

Fair Value= 0.278/(0.08-0.03)

Target price of HK$5.56. Better now!

Lenovo looks undervalued to me and I will be adding US$250 worth of CFDs to my 2020 portfolio. Follow me on eToro here.