March 10, 2017

Kudelski or Temenos? Financial facts say little

Last week, a reader asked Dr. Hermann J. Stern whether to buy Kudelski or Temenos. Looking at the Obermatt rankings, Kudelski had a ranking of 75 and Temenos had a ranking of 1. The clear answer is Kudelski.

The same reader also follows Finanz & Wirtschaft (FuW). On 18 February 2017, they stated that they were not convinced that Kudelski was a good buy but that Temenos had bright prospects (FuW, page 13). Who is right: Obermatt or the FuW?

Upon closer inspection, we see that the Obermatt value ranks for Temenos may be the problem. Temenos stock is expensive in relation to its size (turnover, profit, capital, dividend) and more expensive stocks receive lower value ranks at Obermatt.

Both Obermatt and FuW are right, but our two assessments differ fundamentally. Obermatt evaluates only financial facts and makes no subjective assessment of the future. On the other hand, Finanz & Wirtschaft does exactly that: it assesses the prospects of the company in the future.

If both are right, who should be trusted? Only yourself, because Obermatt, as well as FuW, are only offering perspectives on the reality. You must judge for yourself as to which one is reasonable.

This leads to the last question from our reader: "How can it be that two pay-based analyzes of Obermatt and FuW differ from one another?" The answer is quite simple: the two methods measure different things. Obermatt measures the past and the FuW tries to predict the future.

In the present case, Dr. Stern would personally tend to believe in FuW, because both Kudelski and Temenos are technology companies, where the future is more important than the established financial facts.

Whenever the past is a bad indicator of the future, the Obermatt ranks suffer. This can be the case in biotechnology and high-tech sectors. Even pharmaceutical companies are difficult to grasp with financial facts. Here the Obermatt ranks helpless.

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