The Stocks and Savings Podcast 43. How We Value Companies When Investing
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Feb 28, 2024 Dive into the intriguing world of stock valuation! Discover the key differences between price and value, and learn how to spot potential investment opportunities. Explore the significance of market capitalization and its role in assessing a company's worth. Analyze different valuation methods, including the popular price-to-earnings ratio, and unpack the complexities involved in valuing companies like Amazon. Finally, grasp the importance of prioritizing business quality over mere numbers for successful long-term investing.
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Price Versus Value
- Price and value differ: price is what you pay, value is what you get.
- Market price may not reflect a company's true worth based on future profits.
Shares Don’t Tell The Whole Story
- Share price alone is meaningless without total shares outstanding.
- Market capitalization equals share price multiplied by shares outstanding and reflects company size.
Market Cap Is The Bigger Picture
- Market cap represents the cost to buy 100% of a company.
- It approximates the present value of expected future cash flows though future profits are uncertain.