LegendKiller
Lifer
- Mar 5, 2001
- 18,256
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Originally posted by: mchammer
None of this makes any sense for a publicly held company IMO. The market cap of a company and the value of a company are not the same.
My point was that companies *DO* have intrinsic value (BV), ignoring that fact is pretty stupid. A share is also worth as much as it's future cashflows or reinvestment will earn.
It's plainly evident that almost nobody here knows anything about company valuation, which is funny considering everybody tries to opine on it.
When I was in bschool we had to do valuations on two companies and create an analyst report. My group chose WD40 and Krispy Kreme. It was a good project since we utilized all of the major valuation techniques (DAE, DCF...ETC). At the time KK was flying high, well above industry PE levels, WD40 was tooling along. We set price projections based upon a weighting of all of the model's projections.
Our professor gave us a B, because our KK valuation was $10 lower than current price. Before I graduated a few months later, he had filed with the dean to increase that grade to an A, because KK's stock had decreased down to the $10 and it even follows our model now.
Valuation isn't a black box. People deviate from it because they are stupid and greedy. That isn't the stock market's fault, it is their downfall and their problem. Investing on hype or not looking at fundamentals leads to stupidity and the image that there is a pyramid scheme.