# Company (share) value



## Warren Buffet II (24 February 2005)

Hi guys,

I would like to start this thread to get what people think is the correct value for any company. People normally say "I think ZFX is going up from $3 to $4" or " It is going down to $1.5". Well, here is the place, I would like to know what is your share valuation of any company you find interesting and it would be nice to have some comments to know what you think that should be the "correct" price.

I am posting mine in a moment. 

Regards,

WBII


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## chicken (27 February 2005)

VALUATION OF SHARES AS i mentioned to you re BPC...SHARE VALUATION  ??Its a subject where you will have to know all the facts, which we dont ,we only know what they say in the report..right you take TELSTRA..eg..is it $4 or $9..you dont know, and I bet most other people dont know..a share is the value what people are prepared to pay for it ,you mentioned ZFX could be $4 or as TECH/a said could be $15..because ZFX said they have an asset of $2.20..means nothing ,because there is no such thing as a correct valuation..its worth the money people are prepared to pay for..so..BPC 5 years ago was 3c...now its just about a $1...so where is your correct valuation...ZFX..will go higher than $4..if you cant see that then you have not understood the market...the market decides the price..if they say we are worth 1c...but the market pays 10c then the market valued the shares of what they are worth...there is not such a thing as a correct valuatin..have you understood that, if not talk to your broker he will explain it to you


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## tech/a (27 February 2005)

Personally I have no idea how to assertain value of a company and by the results of experts in the past that i have followed all I see from them is at best an intelligent guess.

When I bought CTX at $3.60 and sold at $8.10 there was no way that Id have thought it would trade at $13 plus but it is.

How can anyone value a share today at 4 X its value in 18 mths?

Why worry anyway just ride it until investors stop buying and they determine price.That way it doens matter what they value it before the fact!


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## chicken (27 February 2005)

Tech/a...my theory is ,the market determins the price..valuation ,what is that ?  THE MARKET SETS THE PRICE>>Valuation or correct price is NOT relevant..TECH/a..you are so right of what you posted  that w.buffet 2 does not have a clue should speak to a broker he might explain to him..that like microsoft which listed for $3..now sells at because of splits etc for $600 equivalent..and one does not know ..what the market will pay..its just a ???


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## stockGURU (27 February 2005)

chicken said:
			
		

> Tech/a...my theory is ,the market determins the price..valuation ,what is that ?  THE MARKET SETS THE PRICE>>Valuation or correct price is NOT relevant..TECH/a..you are so right of what you posted  that w.buffet 2 does not have a clue should speak to a broker he might explain to him..that like microsoft which listed for $3..now sells at because of splits etc for $600 equivalent..and one does not know ..what the market will pay..its just a ???




The market measures sentiment, it doesn't reflect the real value of anything.

A stock's share price (well, market cap. to be more accurate) is simply its perceived value.


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## tech/a (27 February 2005)

Very very true S/G but that is what its traded at----- be it value or not.

Price is what we are trading is it not?
Price will determine profit or loss will it not?

Why does it matter what the REAL value of a company is---it will rarely be reflected in price---hmm perhaps if delisted.

Why does it matter as a necessity to be determined?

This is just my veiw *I dont think W/B should be flamed * because he asked the question!!Its a valid one and one none of us have been able to answer.


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## Joe Blow (27 February 2005)

chicken said:
			
		

> w.buffet 2 does not have a clue should speak to a broker he might explain to him..




Chicken, 

Was that remark really necessary?

Remember, be nice!


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## sarah (27 February 2005)

value is anything does not go down or becomes insolvent.


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## doctorj (27 February 2005)

I believe the question is valid.  Sure the market determines the price and there is no absolute price for any given company, but valuations are relevent because they provide the fundamentally inclined among us to work out whether a company is undervalued.

For instance, a particular company might be valued through the NPV of its cash flows minus its expenses divided by the number of shares on issue. This provides a starting point for working out what a company is worth, it also can be used to evaluate the effect of new projects on the share price.


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## Jay-684 (27 February 2005)

I cannot comment on how to determine the value of a company, and the relevant level of its share price. However, I thought this definition of market value might help some people

"the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion"

some people above have said that a particular companies share price is not only represented by the value of the company itself, but by the relative value the prospective buyer see's in the share. eg if the 'market value' for share X is $2, however a buyer believes due to hype and speculation that the price will rise to $3, then that buyer will be willing to pay above market value (above $2) for that stock. The sale of those shares would not represent the true market value.


if anyone wishes to comment please do (including any negative comments). My opinion is coming purely from a property prospective, and what the property market definition of market value is, so I'm wrong, feel free to put me in my place!


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## Warren Buffet II (27 February 2005)

Hi guys,

What I mean for correct price is something like this:

Eg:

BHP Current Price : $18.60
Broker valuation : $7.01 

So, are you willing to pay $18.60 for this company? or are you going to wait until is down to $17 or you think it is going up to $20 so we will buy for any price from $18.60 to around $20?

It is a simple question, no much drama needed here, I am just after some kind of what people think about any particular company based on the current price.

I'll give you one my thoughts:

NWS Current Price : $21.71
I'll buy it if it goes down under $21. Why? because I think the Australian funds are going to be selling it before the 18th March and I think under $21 is a cheap price. So, this is what I am after, price why, reason..

If anyone wants to shares some thoughts you are more than welcome.

WBII


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## brerwallabi (27 February 2005)

Warren, i dont know if i can ever figure out the correct value of a company. but i do know that tomorrow i might value a company at possibly $5.00 but two days i may revalue at $4.70 thats how i trade and make money, if you are trying to figure out and it seems that way what the value will be in 2, 5 10 years time good luck so much can happen between now and then, i would be more focussed on what the value will be tomorrow.


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## Warren Buffet II (27 February 2005)

brerwallabi said:
			
		

> Warren, i dont know if i can ever figure out the correct value of a company. but i do know that tomorrow i might value a company at possibly $5.00 but two days i may revalue at $4.70 thats how i trade and make money, if you are trying to figure out and it seems that way what the value will be in 2, 5 10 years time good luck so much can happen between now and then, i would be more focussed on what the value will be tomorrow.




Hi  brerwallabi,

Fair comment, I am not a day to day trader so I trade my stocks in advanced. So I do my research set a price and follow the company to see how it is behaving (changing buying price if needed) until I get what I want.   

It is not 2,5,10 years it could be tomorrow if I can get for example TLS for $5.00 I'll buy it tomorrow.

WBII


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## stockGURU (27 February 2005)

Warren Buffet II said:
			
		

> Hi  brerwallabi,
> 
> Fair comment, I am not a day to day trader so I trade my stocks in advanced. So I do my research set a price and follow the company to see how it is behaving (changing buying price if needed) until I get what I want.
> 
> ...




Warren,

I think one of the first steps in trying to figure out whether a company is undervalued is to fully understand the industry that business is in, that businesses place in it, their products and the quality of their products or services, their markets and their potential for growth.

Then, of course, there is earnings.

Whatever way you look at it, there is still a lot of speculation, extrapolation and guesswork involved.

All I can say is that I understand why people specialise in sectors... sometimes it seems there is just too much information and data to wade through. Spreading yourself too thin can work against you.

Fundamental analysis takes a lot of time to do properly.


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## Warren Buffet II (27 February 2005)

stockGURU said:
			
		

> Warren,
> 
> I think one of the first steps in trying to figure out whether a company is undervalued is to fully understand the industry that business is in, that businesses place in it, their products and the quality of their products or services, their markets and their potential for growth.
> 
> ...




stockGURU,

Completely agree. That is why I can set a buying price, if I do not do it I am just speculating. I put my money where I know I can get some profit and  not only because I "Think" or seems to be going up.

WBII


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## brerwallabi (27 February 2005)

To be honest i am really not interested in the true value of a company and in some cases it is totally immaterial if the share is a bank,oiler,metal or retail etc, if a share is $5.0 and some broker puts it at $6.25 based on its book value to its NTA, I would certainly take the comment on board and depending on funds available and other oportunities around i would follow closely and if the thing looks like going for a run maybe I would look to enter, I would then also be looking to exit. Value can change very suddenly, opportunities come along every  day, my money has to work for me continually, my trading is shortterm, yes and i do watch charts very closely, may be you may need to gain some understanding of charts and then you may be able to spot some value not neccessarily TLS @ $5.00 but a stock coming of a support line and heading north again now thats value, this is a tricky business and you could do your dough. Good luck hope you find your value have sometimes.


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## chicken (28 February 2005)

WARREN BUFFET 2 you said you trade your stock in advance...well that means you are a shortseller...watch yourself because in a bull market you loose your pants...and your valuation are not correct what you assume of value is to me a questionmark but each to their own..but I see pitfalls in your module which sooner or later will brake you ,so buy and sell, but going short has ruined a lot of traders..believe me...the brokers want their dough


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## chicken (28 February 2005)

THINK ABOUT THIS....the market determins the price...not posters , as they cannot influence what happen from day to day...look at the resources..a 3c share goes to 30c...and their asset is 1c...so your argument or statement is of no  foundation...the market decides what happends..and WHY...there is allways a reason...people know..like you said you buy TLS at $5...well we all like dreamers...its just not the way the market works and because you are not buying well who cares...because if you have not a billion $$$ you cant influence what happens in the market Mr Packer can because he has the equity to do so...so your thread on sharevalue..is just impossible to give a true answer because thats a holy grail which is impossible to answer because if everyone thought the way you seem to ,there would be no market...we all think differently...thats why the buyers think long and the sellers are short..you seem to be in the later group who thinks we should all give our stock away..no my friend thats not the way it works but we all make up our own way...thats why you have a market...THE MARKET DECIDES....BETTER BELIEVE THAT


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## kooka1956 (28 February 2005)

The market decides what sort of premium it should give to different types of shares. At the moment most resources are traveling extremely well due to the Chinese economy, banks have had their run a while ago and capital increase has been minimal for the past year or two,and in the case of N.A.B. negative.
I would not discard N.T.A. however. This is the true value of a stock if they were to shut their doors tomorrow,and would be the only thing you would receive in a firesale.  I disagree with tech/a when its mentioned  'WHY WORRY ANYWAY JUST RIDE IT UNTIL INVESTORS STOP BUYING'. If you had experienced the crash of 1987 you would be aware that this thought was in the minds of 1000,s of investors who lost over 40% of their portfolios in a single day.Their was no prior opportunity to jump off the bandwagon.
Therefore I consider N.T.A. to be the fundamental price of a stock,anything over that is the perceived FUTURE increase of that N.T.A. regards   KOOKA


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## Warren Buffet II (28 February 2005)

Hi Guys,

Thank you all for all that expertise, I am pretty sure there are many guru investors here with may number of techniques and knowledge about how the market works, how I should invest, how charts works, how to read charts, how Mr x work, about how correct valuation does not work, how valuations are incorrect, if you are interested in those areas I will open another thread to follow those discussions without loosing the correct point here. 

In this thread I am not interested in that stuff in this thread I am interested in knowing what are your company valuation at any point in time.

Just valuation thanks

I'll give you another example for those still loosing the main objective:

BHP : valuation = $20
Becase this and this

Another person can reply I think that is expensive because this and this... or is cheap because this and this....

Hopefully we get it rigth this time.

Regards,

WBII


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## chicken (28 February 2005)

As I said before you are wanting the holy grail...the market decides the price...


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## TjamesX (28 February 2005)

I think WBII understands there is a difference between price and value. But I don't think he'll get what he wants maybe from people on this forum - I would say that most people here would not have an independant valuation (not price) on what their shares are worth (not price), as most here are TA types.

I like FA, but it has its flaws. Like market prices - fundamental value can change day to day depending on what sort of business it is (ie if its a resource company - its value is directly related to the price of its commodity - which also changes day to day, so now you have to do an valuation on the prospects of that commodity - is it over/under priced?? you can't do that). 

DCF is a fundamental model for valuing a company by discounting its future cash flows, but any decent DCF model needs 5 + years forecast and when your forecasting that far its just pie in the sky stuff (note DCF does have its uses, you need to have some way to work out value for the purposes of takeover and mergers/aquisitions)

This is why I think decent FA investors (Buffet) put such a huge emphasis on the economics of the business model and more importantly the managers running the company. Essentially if you have good management, you are trusting them to make the right decisions when the economics of their business change - fundamentals can constantly change but if you have the best management they will be able to deal with this. I think Buffet essentially is really good at understanding microeconomics and PEOPLE.


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## TjamesX (28 February 2005)

One of the easier companies to fundamentally value is Listed Investment Companies. They have a whole lot of investments valued by the market, their day to day value is completely determined by their NTA per share, very little changes with these companies - their expense ratios and management do not change and yet they consistantly trade at varying discounts/premiums to their NTA ??? thats the way the market is....

I couple of months ago I significantly added to my Argo (LIC) portfolio when they were priced at 5.08 per share, their NTA was 5.41. Historically this was a wide gap so I thought it would close..... it did, mind you I didn't stay there all they way until they got to 5.41.... BUT and this is the big BUT ..... a sharemarket correction could have occured between me buying at 5.08 and waiting for it to rise - a correction could have sent its NTA to around 5.00 or even less... so now we have a new fundamental value.

This is the problem with pure Fundamental analysis..... you buy and WAIT for the price to get closer to its VALUE, but in the meantime that fundamental value CAN change. You may think that this scenario isn't relevant to all businesses, but an undervalued business can have any number of adverse outcomes that effect the value of its business at any time....

So why does Buffet care so  much about managment? I think he does because buying an undervalued company is not enough - you have to trust management to deal with adverse effects and KEEP the fundamental value of its business rising or outporforming its peers.

Disclaimer - I think TA has FLAWS aswell, I tend to use both.


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## Investor (1 May 2005)

TjamesX said:
			
		

> ....
> 
> So why does Buffet care so  much about managment? I think he does because buying an undervalued company is not enough - you have to trust management to deal with adverse effects and KEEP the fundamental value of its business rising or outporforming its peers.




Buffett mentioned the reason in one of his writings.

With his assessment of management, he looks for:

1. Integrity.
2. Competence.
3. Energy.

He added - without the first trait (integrity), the other two traits will wipe you out.


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## krisbarry (1 May 2005)

Before anyone shoots me down about ramping, I am not ramping LVL, but here is my undertanding of the value of shares in relation to the company.  This chart was provided by LVL 

June 30                   2006            2007         2008            2009
NPAT                      4.3m            8.6m         13.4m           15.4m
Expected p/e ratio    10X             11X           12X              14X
Market Cap.             $43m           $96m         $161m          $216m

Anticipated Share
Price ...                  $0.15          $0.33          $0.56           $0.74

I would expect the share price to be less, if more shares are issued or the market cap was not achieved or vice-versa...extra market cap or share buy-back would make the price go much higher.

Supply and demand factors would also come into play when dealing with the share price. eg.... I could safely say that most stocks dealing with Uranium mining are well over priced right now, due mainly to global demands.

Also note this is anticipated share price and would not take into account days on which annoucements were made that pushed the share price up or down due to market forces.

The full chart is provided in the  Memorandum 

Source "Information Memorandum for Private Placement"  LVL


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## krisbarry (1 May 2005)

Damn, I typed the chart out nice and neatly then posted it and it turn out like crap! Ohh well.  

Check the Company Announcement for LVL 11-Apr-2005 
Information Memorandum for Private Placement  pg. 10 and this may help!


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## stockman (2 May 2005)

Can someone value the share price of CLF? Remember that they've only posted a half yearly report as well.

It seems cheap to my calcs want to know what you guys come up with. Thanks.


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## Wysiwyg (17 March 2008)

Investor said:


> Buffett mentioned the reason in one of his writings.
> 
> With his assessment of management, he looks for:
> 
> ...





The fight or flight principle is a factor in stock markets that i was thinking about and is more evident at present.I haven`t seen this type of flight from market so closely before with stocks doing well financially and structurally sound being swept aside, effectively significantly reducing the share price but the value is still there.Euphoria in reverse.It is just crazy and in this modern era why can`t the `powers that be` control the overall situation better.
Why are financial institutions allowed to get out of hand? It would be advantageous and a win/win situation if a balance was kept instead of a huge swing one way and a huge swing the other way.
Are these financial institution individuals educated appropriately?Is this whole scene orchestrated to `control` a certain large country rise into the 21 st. century or even slow many countries growth this century? 

While the flight principle is in play at the moment I wonder what the core driver is at this point in time.Something beyond what is being published.Any ideas?


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## kingie_d (17 March 2008)

WB,
I just read this thread (I'm a poet and I don't know it!). I understand what you were trying to get at by starting this thread and I also understand what everyone else is saying about it being fruitless to try to determine the future value of a stock because of all the variables involved. 
I use tech analysis and trade short to medium term time frames but recently I decided to look into Fundamental analysis as a way to compliment my TA. I decided that if I could use basic FA to determine if a stock is "undervalued" or "cheap" and using by using TA, determine that the price has either started an uptrend or is in an uptrend, then both styles will validate each other to hopefully make a more successful trade. 
Before everyone rips into me, I understand that, yes, in the short term, prices can do whatever, based on whatever is currently happening and that FA is based on long term trading.
But using FA to assist my short term TA I will hopefully stay out of trades that are more likely to go against me. If I see a downtrend and want to short it but the fundamentals say that the stock is undervalued then I won't short it but rather look for one that is fundamentally in trouble AND in a downtrend. I know that this will keep me out of a lot of profitable short term moves but I am using it as a final filter in trading selection.
I just read "One up on Wall street" by Peter Lynch and did some research on the net and I'll chuck in an example of a stock, that by using their formulas, is undervalued, which I interpret as meaning it has however much upside potential. I know it isn't a detailed fundamental analysis, just a ball park figure.

PEG ratio:  

http://ezinearticles.com/?Understanding-a-Stocks-PEG-Ratio&id=45807

BHP: 17/03/08
Share Price: $37.50
2006 EPS: $2.254
2007 EPS: $2.75
therefore EPS Growth rate: 22.005

2007 PEG ratio = 37.50/2.75/22.005 = 0.619

According to that website a value under 1 means its undervalued. 
So when it gives signals to buy using TA (as long as the Share price hasn't gone too high yet) then I will consider going long.

According to that formula (I know, it is extremely basic - but is based on earnings growth compared to price which means it has to have some value!) to get a PEG ratio of 1 (meaning it is at the correct value) the price has to go to _$ 61 per share._

That leaves plenty of room inbetween for me to go long with short term swing trades.

I've only just started reading up on FA and its only a basic 'formula' but I thought I'd chuck that spanner into the works and see what responses I get.....


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## ROE (17 March 2008)

Stock price = All future earning discount to present value + risk


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