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Learning to Invest / Reading Financial Statements


Subject:  Re: Valuing a stock Date:  6/20/2000  12:43 PM
Author:  herd Number:  1157 of 3988

Now if the present value of a stock is the
present value of future cash flows, its price already has that growth rate factored into it. In other
words, my stock would not appreciate unless the company exceeded the growth rate of 30%,

It seems to me, that you are mixing intrinsic value (determined by calculating the present value of future cash flows) with price ( the market place's popularity contest). The current price may be at, below, or above the calculated value of the business, and often is. That is the reason I do DCF analysis.

An example is CSCO. This year it has been as low a price as $51, my FV/sh came out in the range of 41-57, since I had been wanting to acquire CSCO for my port. I bought at $51 ( actually hit at 53 as it started back up rapidly). It is now 63 or so and I would not normally buy more until it is again below my calculated FV/sh.

The FV/sh is the last step in my deciding to buy a company. I think it is a flawed procedure but....

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