New answers tagged

8

Be careful about survivorship bias. For every Apple, Amazon or Microsoft which grew from a garage company to an international megacorporation there are thousands of cases of companies which stayed small or went bankrupt. How can you from the outside judge how great the leadership, how talented the workers and how amazing the product of a company really is? ...


14

What would be a reason not to invest in Tesla, or any similar small sized companies that have these same attributes? A big, big, big reason not to invest in such a company is that its stock may be overvalued already. I think a lot of people have the misconception that a stock's price reflects the company's net assets, and so if a company doubles in size, ...


8

In the case of Tesla, two reasons. 1) Its stock price has already been driven to unrealistic levels by fans; and 2) The corporate leadership. Point #1 seems fairly obvious. #2 requires some comment. The problem here is that Elon Musk seems to have a compulsion to balance every great idea with a really stupid one. Make good electric cars? Great idea! ...


0

Depends on what you want to do with the market cap. If you want to know how big a particular company is, of course you should be using the full amount of shares. If you, on the other hand, want to create an index fund, you probably want to include only the shares publicly traded in the weight calculation. It is very important to know what number for ...


0

Dividend discount model is flawed in the format it is given in. It requires you to enter dividend (known), growth rate for dividends (well, you could estimate that for an individual stock but your estimate could be way off because this is predicting the future which is hard) and yield demand (this is very hard to give). Specifically, the problem is with ...


0

A P/E ratio of 10 and a dividend yield of 2.7% represents a payout ratio of 27.0%. A P/E ratio of 21 and a dividend yield of 3.7% represents a payout ratio of 77.7%. If the P/E ratio of 10 had a payout ratio of 77.7% then that would be a dividend yield of 7.8%. Basically, the dividend yield, combined with a varying payout ratio, does not indicate a ...


2

There are several similar answers, but I feel a need to clarify how stock prices really work. The original post is about Point 3 below -- someone taking Control of the Company and divesting its assets. The stock price shown on exchange as current is actually two prices: how much someone is prepared to pay for a "small" number of stocks, and how much ...


2

Suppose my company has a billion dollars in cash and no debt. Now suppose I expect to lose 2 billion dollars on my trading in the next year, and it's unlikely that anyone will lend to me to cover the shortfall. I'm likely to go bankrupt, and my stock is close to worthless. That is, it will be worth much less than the cash on hand. It's worthless now ...


7

Market capitalization is a completely theoretical value that is based on how much investors are willing to pay for the stock, which in turn in based on investor expectations for the future of the company. It has nothing to with the actual balance sheet of the company. Let's look at a simpler example: Company X has an initial public offer that raises $100M....


30

I'm not sure why you say, "the company has virtually no debt". Their balance sheet says otherwise. CRTO has about $390 million in accounts payable. Their total liabilities are approximately $750 million. So they may have lots of cash, but they owe even more money than that. Shareholders can't take the company's cash without paying off the company's debts. ...


3

There are many reasons that the shareholder decide to sell a stock during the bear. It is mostly due to opportunity cost justification, i.e. Company never pays dividends Low rebound potential Company dilluting per stock value Poor future earning prospect there are better company to invest the same dollar No, you cannot make "instant profit" after you ...


15

Even assuming they have no debt, if revenue dries up they could quickly burn through that pile of cash. The stock may be currently undervalued, but the price reflects the uncertainty of their ability to use that cash and other assets to churn out profits in the future. If they had no debt and were liquidated today then you could definitively say they are ...


22

Even a company with $100M in cash isn't worth that much if, for example, it has $60M in debt. Equity holders only get paid after debtholders get paid. That's why equity has a higher risk and a higher return than debtholders. If the company you're looking at has any debt at all, that would reduce the value of their equity trading on the stock market. Whether ...


1

Short positions don't change the financial fundamentals or the business prospects of a company. Large short positions can only successfully respond to serious problems. A company with large investments in another company must disclose the investments and often needs government approval. If the approval happens quickly then it's probably just acknowledgement ...


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