This is just how to value the stock at its current price but it really doesn’t count for let’s say growth stocks. For example you have a stock that has a patent that may be a game change let’s say in a certain sector. How would I be able to calculate its worth then? Great video non the less but if I could make a suggestion or maybe even a request for a future video is how would I be able to calculate a stock that’s earnings and potential haven’t been realized to its fullest. Thanks
Great suggestion. I've kind of talked about that in this video here which I think you'll enjoy too: th-cam.com/video/Ic0Hb0UoZPM/w-d-xo.html A company's value is based on cash it can distribute to it's owners in its remaining lifetime so this calculator is technically the correct way to do it still but it's not advanced enough of a calculator to allow you to make assumptions like "the company will lose money for the next 5 years but then it will make a lot of money after 5 years" those types of calculations would require a more advanced spreadsheet. For those companies that aren't profitable yet the qualitative analysis matters a lot more. You need to be certain the business will have pricing power and will actually be able to be profitable and maintain that without competitors coming in easily. Hope this helps!
Hi Richard Great video BTW can you make a video on how to value bank stocks or Insurance companies. I've heard that they're not valued the same way as a typical stock. I have problem valuing them. Thanks man as always
I did not understand One thing, What was 4%. Inflation rate ? What do you mean by this. Can you please explain to that term what you enter as 4 %? I would like if you reply soon. Thank You
So we estimated that free cash flow per share would grow at a rate of 20% annually for the first 10 years and then in years 11 and beyond the growth rate becomes only 4% annually... When you do these calculations it projects out into infinity (another way of saying that is 'into perpetuity') .. so the calculator assumes the company will be alive forever. So we want to use a very modest growth rate. because it would be unrealistic to say that the company would continue to grow by 10% for example, forever.... 4% is modest and that has been about what the rate of inflation has been... another way to look at it is that after year 10 the company begins to just coast for the rest of its life. Watch this video (link has a time stamp to the part in the video) to no more about projecting cash flows into perpetuity... notice how the present value of far out future cash flows don't contribute much to the Present value total. th-cam.com/video/aJGtpAD-G2A/w-d-xo.html Watch this one to learn more about inflation: th-cam.com/video/UyiW-yRzko4/w-d-xo.html
Thanks for all the great links too.
No problem!
Thanks Richard for your hard work
My pleasure!
Looking forward to this!
I've got a estimating cash flow growth video coming up for you ;)
Nice one Richard! Definitely a company worth looking at adding to the portfolio.
Glad you enjoyed it! Thanks for your support.
Great video Richard< Made my Notes.
Great!
This is just how to value the stock at its current price but it really doesn’t count for let’s say growth stocks.
For example you have a stock that has a patent that may be a game change let’s say in a certain sector. How would I be able to calculate its worth then?
Great video non the less but if I could make a suggestion or maybe even a request for a future video is how would I be able to calculate a stock that’s earnings and potential haven’t been realized to its fullest.
Thanks
Great suggestion. I've kind of talked about that in this video here which I think you'll enjoy too: th-cam.com/video/Ic0Hb0UoZPM/w-d-xo.html
A company's value is based on cash it can distribute to it's owners in its remaining lifetime so this calculator is technically the correct way to do it still but it's not advanced enough of a calculator to allow you to make assumptions like "the company will lose money for the next 5 years but then it will make a lot of money after 5 years" those types of calculations would require a more advanced spreadsheet. For those companies that aren't profitable yet the qualitative analysis matters a lot more. You need to be certain the business will have pricing power and will actually be able to be profitable and maintain that without competitors coming in easily. Hope this helps!
Hi Richard
Great video
BTW can you make a video on how to value bank stocks or Insurance companies. I've heard that they're not valued the same way as a typical stock. I have problem valuing them. Thanks man as always
Ya I can do that. You're right, they are valued differently and I generally stay away. That's a great video idea. Thanks!
Where do i find that free calculator that you used in the video? I don't see it in the description links
Here it is! www.moneychimp.com/articles/valuation/dcf.htm
I did not understand One thing, What was 4%. Inflation rate ? What do you mean by this. Can you please explain to that term what you enter as 4 %? I would like if you reply soon. Thank You
So we estimated that free cash flow per share would grow at a rate of 20% annually for the first 10 years and then in years 11 and beyond the growth rate becomes only 4% annually... When you do these calculations it projects out into infinity (another way of saying that is 'into perpetuity') .. so the calculator assumes the company will be alive forever. So we want to use a very modest growth rate. because it would be unrealistic to say that the company would continue to grow by 10% for example, forever....
4% is modest and that has been about what the rate of inflation has been... another way to look at it is that after year 10 the company begins to just coast for the rest of its life.
Watch this video (link has a time stamp to the part in the video) to no more about projecting cash flows into perpetuity... notice how the present value of far out future cash flows don't contribute much to the Present value total.
th-cam.com/video/aJGtpAD-G2A/w-d-xo.html
Watch this one to learn more about inflation:
th-cam.com/video/UyiW-yRzko4/w-d-xo.html