You pick an operating margin or EBIT margin for year one and run it out across the next nine years, year ten. Maybe you think margins are going to remain pretty stable because it's a pretty stable industry. The players in the industry are rational about their pricing. And maybe the industry's just been around a long time and you think pricing is going to be remain stable. Or not so slowly over the next ten years. In either of the three cases, you have now estimated an operating margin that you think the company can achieve for each of the next 10 years. Remember, we just estimated these are all estimates. All of them. We just estimated right before that what we thought revenue
Grab your notebook and get ready to dive deep.
Motley Fool Senior Analyst John Rotonti discusses how investors can value a company using the discounted cash flow model. This method is the fundamental way to determine if you’re getting a bargain or paying too much when you buy any stock.
Rotonti discusses: - How to pick a discount rate for investments. - The key difference between fair and intrinsic value. - How to project free cash flows.
Have an investing question for John? Call 703-254-1445, leave a voicemail, and he may answer your question in an upcoming episode.
Additional resource: https://www.fool.com/investing/2022/01/19/expectations-investing-qanda-mauboussin-rappaport/
Stocks discussed: IBM, NEE, PEP
Host: John Rotonti Producer: Ricky Mulvey Engineer: Rick Engdahl
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