Shares outstanding vs. price

[McLovin]

What you guys call enterprise value, every stock report lists as Market Cap. That's short for Market Capitalisation and is calculated (that bluddy Maths again!) by multiplying the current share price times number of shares on issue.

Just to clarify, enterprise value is actually market cap + debt + minority interests + prefs - cash.

 

[McLovin]

Skc but isnt the likelihood of a stock worth $4 doubling more likely rather than a $300 dollar stock doubling. On that notion I thought the reverse is also true for a short position?

No.

 

[pixel]

but isnt the likelihood of a stock worth $4 doubling more likely rather than a $300 dollar stock doubling?

in one word: No!

Here is why:
Apart from the fact that Australia doesn't have $300 stocks, the only determinant is the enterprise value. That is generally set by institutional analysts, who know how many shares are on issue. They will also include company options, assess the likelihood of their being exercised, adding such capital as may be due, then calculate and publish a "fully diluted" target price per share.
Assuming no ulterior motives - as in the analyst's employer intending to buy or sell a substantial parcel of said company - a good analyst should come up with a reasonably fair value that followers may use as a guide whether to buy or sell.
The combined activity of market participants will then determine the effective Market Cap.

 

[skc]

Skc but isnt the likelihood of a stock worth $4 doubling more likely rather than a $300 dollar stock doubling. On that notion I thought the reverse is also true for a short position?

Why?

Your thinking is all over the place and shows a lack of basic knowledge of the market and capital structure of companies. However, this is how one learns and develops...

1. Observe and study the market
2. Develop hypothesis to explain behaviour observed
3. Acquire new knowledge and data to check and test hypothesis
4. If hypothesis is valid, try to develop trading strategies around it
5. Repeat step 1

Everytime you go through this loop you learn something new.

 

[pixel]

Just to clarify, enterprise value is actually market cap + debt + minority interests + prefs - cash.

Point taken, McLovin
"you guys" didn't actually use the term "enterprise value", but were talking about a $100M company.
My bad.

 

[McLovin]

Point taken, McLovin
"you guys" didn't actually use the term "enterprise value", but were talking about a $100M company.
My bad.

No worries, pixel. I probably should have been clearer in my first example because it seems to have confused everyone!

 

[darkhorse70]

Thanks for the feedback guys. I understand they are valued by analysts etc but the shares usually trade many times the initial value, due to "potential" future earnings etc.

I only said that because a book I read stated that, that was the case probability wise. It was probably reffering to companies who have doubled,tripled,quadripled in value while no fundamentals have changed.

Skc ill screen shot that. I have thousands of hours of backtesting I have to do before I make any assumptions. At the moment they are all hypothesis until proven other wise.

Thanks guys

 

[Trembling Hand]

Your thinking is all over the place and shows a lack of basic knowledge of the market and capital structure of companies. However, this is how one learns and develops...

1. Observe and study the market
2. Develop hypothesis to explain behaviour observed
3. Acquire new knowledge and data to check and test hypothesis
4. If hypothesis is valid, try to develop trading strategies around it
5. Repeat step 1

Everytime you go through this loop you learn something new.

Can I not just read a book? :aufreg:

 

[Value Collector]

The mathematics would say the companies are the same, value wise ... but not price wise!

But it is not about mathematics, is it?

Thats what I was thinkink to burglar. Atleast phycologicaly wise atleast 300$ for one share seems more intimidating than 20$. I guess the real question is how much of an impact does outstanding shares have on price.

It was just a thought, one that I hadnt thought of factoring in before.

Only in the same way as having a $100 note seems like more than 5 x $20 note.

You can't tell anything about a companies value from share price alone, it always must be tied back to shares on issue.

eg Berkshire Hathaway class A shares are worth $206,000 per share. But they are more undervalued than some shares trading at $20.00.

On Tuesday Berkshires class A went up by $1,350 which was a rise of 0.68%, it's all relative.

If I told you one bag of potatoes was $5 and another $10, you can't tell me which one is a good deal or a complete rip off unless you find out how many potatoes are in each bag.

 

[Julia]

No worries, pixel. I probably should have been clearer in my first example because it seems to have confused everyone!

No, you didn't confuse everyone at all.

dh, there's an old saying: something about trying to run before you can walk.

 

[Value Collector]

Be very, very careful or you will end up a "Value Investor" instead of a trader!




View attachment 59647

I don't think that would be a bad thing, He obviously has a lot to learn, and understanding / learning more about how companies are valued and how it affects market price doesn't seem like a thing he should avoid.

 

[skc]

Only in the same way as having a $100 note seems like more than 5 x $20 note.

If I told you one bag of potatoes was $5 and another $10, you can't tell me which one is a good deal or a complete rip off unless you find out how many potatoes are in each bag.

Two very eluquent analogies!

Thanks for the feedback guys. I understand they are valued by analysts etc but the shares usually trade many times the initial value, due to "potential" future earnings etc.

Did you mean intrinsic value?

I only said that because a book I read stated that, that was the case probability wise.

So the book took a study of all the lower priced stocks (say under $10) vs all the higher priced stocks (over $300?) and found there's a statistical edge in the former rising more than the latter? Over what time frame? In which market?

Skc ill screen shot that. I have thousands of hours of backtesting I have to do before I make any assumptions. At the moment they are all hypothesis until proven other wise.

Make assumptions first, validate later. In validation you will learn whether the assumption you've made is correct. Validation can be back tested, forward tested, logic tested etc etc. And in doing the validation you might find new relationships. Initially your assumptions may be way off the mark, but overtime they should improve as you home in on what actually matters.

By all means read books etc to give you ideas. Afterall, one would hope that what is stated in the book is in fact based on market observations (or may be even analysis).

P.S. Darkhorse, may I congratulate you on much improved posting on the forum... e.g. sentences, paragraphs, general manner and attitude displayed. It makes people much more willing to respond.

 

[burglar]

I don't think that would be a bad thing, He obviously has a lot to learn, and understanding / learning more about how companies are valued and how it affects market price doesn't seem like a thing he should avoid.

It is definitely not a bad thing ... if that's how you are wired up.

 

[darkhorse70]

Thanks for the feedback guys. Points taken. If I was going to reply individually on every ones feedback it would take ages on my phone. I guess I should of acted more professional SKC. My bad.

Skc the book I read it in was technical analaysis of stock trends by Edward and Magee. The photo below is where it claims cheaper prices stocks are more volatile. Obviously there are other factors other than price alone that make up the end result.

But since it mentioned price as a factor when selecting stock I was thinking about a price range to set as a hypothesis. My immediate conclusion was an expensive stock which had run doubped/trippled would be "more" likely to start to move slower. Then I asked the question. if were going to compare prices then I was assuming that it would have to be relative to shares outatanding.

 

[burglar]

... and found there's a statistical edge in the former rising more than the latter ...

No matter what you find:
The edge when rising is well cancelled during falling.
I love volatile shares ...
the pump of adrenaline ...
but they halve and quarter faster than they double and redouble.

 

[DeepState]

1. Observe and study the market
2. Develop hypothesis to explain behaviour observed
3. Acquire new knowledge and data to check and test hypothesis
4. If hypothesis is valid, try to develop trading strategies around it
5. Repeat step 1

Everytime you go through this loop you learn something new.

Well hello Mr/Dr/Prof Deliberate Expertise Development. Awesome par excellence. Something for another thread, if you want to pursue. Got some questions about the application of this concept in investment environments in contrast to low uncertainty environments.

 

[So_Cynical]

Well hello Mr/Dr/Prof Deliberate Expertise Development. Awesome par excellence. Something for another thread, if you want to pursue. Got some questions about the application of this concept in investment environments in contrast to low uncertainty environments.

Why do you consistently want to complicate everything with layers of crap.

 

[DeepState]

Why do you consistently want to complicate everything with layers of crap.

Dunno. Because it works? That's probably a crap answer.

 

[burglar]

And I was going to apologise for being rude yesterday.

 

[Julia]

Why do you consistently want to complicate everything with layers of crap.

Could you say why RY's comments were 'crap'?
Seemed to me a positive and interesting response to SKC's post designed to further the discussion.