Structural Valuation Analysis (SVA) charts combine key technical and fundamental investment elements into a single graphic.
An SVA chart identifies the intrinsic values, trends, and risks for a public company, serving as a powerful addition to buy and sell investment decisions.
The 4 Keys to Reading (and Profiting from) an SVA Chart
1. This is Fundamentals-Driven Technical Analysis
- The lines on our charts are composed of Balance Sheet data, unique to our Structural Valuation Analysis (SVA) methodology. SVA lines (called Breakpoints) are independent of historical price series, the normal basis for technical analysis.
- SVA Breakpoints are valuation boundaries for a given equity. We look for changes in price movement when stock prices reach critical boundaries based on their valuation history.
- Each set of colored lines forms a Valuation Zone, each of which signal characteristics for growth expectations, volatility, and risk/return opportunity.
2. Let the Fair Market Value be Your Guide
- We capture projected future earnings in our Fair Market Value (FMV) measure, which provides an indication of the long-term potential for a stock.
- Because of the inherent volatility and accounting distortions of reported earnings, the FMV is a guide, not an absolute target price.
- Portfolios of stocks with high FMV potential (difference between current stock price and FMV price) outperform the market by a significant margin.
3. Follow the Slope of the Lines
- SVA Breakpoints are based on a company’s book value . Changes in Breakpoints from one quarter to the next reflect changes in the book value per share.
- The slope of the lines show how a company’s book value is expanding or contracting. Strong earnings and equity issues help increase book value, while losses, share buybacks, and write-downs all contribute to decreases in book value.
- Sharp changes in the Breakpoint lines typically signal major changes to the balance sheet, such as acquisitions or divestments.
4. Act on Inflections and Transitions
- A stock’s trading history forms a Valuation Signature as it moves between SVA Breakpoints. Companies have predictable, repeating patterns within their Signature.
- The two key events we look for are Inflections and Transitions. Inflections occur when a stock changes direction at a Breakpoint, while Transitions are when a stock crosses from one Valuation Zone into another.
- The best times to act are during Inflections or Transitions. SVA Breakpoints can be used as both buying and selling signals, visually showing when stocks are undervalued or overvalued.
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