How to Tell if a Company Is Cheap or Expensive?

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A high PE doesn't mean a company is automatically overvalued, it just means that the market has a high expectation for that stock. A number of reasons why the E, the earnings that a company have can be dramatically overstated or understated. Shopify recently took a pretty big equity position in a financial company called Affirm. When Affirm's stock goes up, Shopify says our net income went up and the inverse is also true. For that reason, Shopify's PE ratio is essentially useless to investors because it tells you nothing about the underlying business.

IN THIS EPISODE, YOU’LL LEARN:

02:52 - What is a stock and why do stocks have value?
04:40 - The main factors that increase a company’s value over time.
05:48 - What causes stock prices to move up and down and why this sometimes has nothing to do with company value.
07:51 - How share repurchases and dividends impact a company’s stock price and company value.
11:26 - Why the P/E can look inflated based on the market cycle, accrual accounting choices, a company's equity investments, etc.
14:04 - What factors influence a company’s reported earnings that you may need to adjust for when valuing a company.
21:06 - An overview of GAAP and non-GAAP accounting, what are the differences between the two, and which should investors focus on for valuation analysis.
24:44 - What are the main ways that earnings can be manipulated based on accounting assumptions used?
46:27 - What are some accounting warning signs to look out for that might suggest companies might be cooking their books?
49:54 - What discrepancies to look for in a company’s income statement vs cash flow statements.
And much, much more!

*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.

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Related Episode: You CAN Beat The Market w/ Brian Feroldi - MI082.

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