I wish I wasn’t tired of seeing fan art 🤣 not sure what’s up with that right now!
Well welcome to the beginning of what I hope is something getting great! 😊
And if it doesn’t work out? It won’t have hurt to try.
I will learn the most from people like you. People who debate aggressively in good faith AND want to have conversations!…. Even if it gets weird with me sometimes 🤣
@diegoloco this is what I am aiming for people to be able to do themselves eventually. https://peakd.com/hive-185582/@hurtlocker/papa-johns-valuation-using-the-discounted-cash-flow-model
That particular valuation was done very quickly by me so it won't be "perfect" but valuations are based on a lot of assumptions and are really a tool to assess a company's valuation versus telling you exactly what a company is worth.
Hello. The method used is interesting.
They are estimates, but it's more rational than relying on book value or estimating a value using the earnings multiple of the industry in which the company operates. As a method, I believe it's the most advanced model for valuing companies that financial data provides. It requires effort because you have to find the value of several things, but it allows you to estimate a company's value. Comparing it with the stock market price allows you to know if it's undervalued or overvalued.
It's not a valid approach for trading, but very useful for making decisions with a medium- or long-term investment horizon.
It's also interesting because, depending on the specific circumstances of financial and economic cycles, data such as interest rates, for example, are unlikely to remain stable over time, and the final figure reached will surely vary. Beyond obtaining a company value at the time of the evaluation, you can also analyze other interesting things, such as how a sharp increase in interest rates would affect the value. Or modify annual sales projections if we believe a competitor could overtake the company in the market.
It's a model that allows us to estimate value, but also to assess risks, and we can experiment with the conclusions.
I love this response so much it makes me really happy.
The cool thing is the method is "advanced" but the education you need is fairly basic. The most advanced thing anyone will use is an exponent. This is the main reason so many big names in finance have engineering backgrounds. Finance math is not "too" complicated.
And your takeaway is 100% correct. Creating these models is just 1 tool you can use. They are highly subjective and it is an art not just a science. People tend to model companies and fall in love with the valuation model they created and rely on it too much. It is just a tool and nothing me.
I have made most my money investing in medium or long-term investment horizons. Day trading is fun but rarely do the returns (especially on a risk adjusted basis) outperform a good medium to long-term investment strategy. In my experience anyways 😊
There is some correlation stuff that comes into play when doing cost of equity but there are formulas in excel and google sheets that do this for you so that makes it a lot easier to pick up in today's society.