If you think the company is worth a hundred, that your estimated value per share and the stock's only trading at 50, then maybe you found yourself a bargain. For companies that are more predictable, like Pepsi, like a utility, like Coca-Cola, your range of estimated fair values is going to be more narrow. When you're valuing a crazy startup that's growing 100% a year, has not achieved scale yet, has not proven they can do so. It's much harder to value that company. The model lets you see at least potential paths to profitability and self-funding and free cash flow generation.
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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