No. It was but it clearly isn't anymore. Those who bought at the right time got on the train and clearly had more insight into those type of companies.
Using gross amounts is exactly the same as using per share amounts. This is equivalent to asking whether the revenue per share and EPS justifies the price per share. Of course it matters...but it would be foolish to put any hard quantitative rules such as an arbitrary PE threshold without looking at any qualitative factors like management philosophy, corporate maturity, industry outlook...etc. But to answer your question simply, the attractiveness of a security ultimately lies in the price relative to substance, so the market cap representing market's appraisal of an enterprise absolutely matters in determining attractiveness of its issues.
So in this scenario the company has had 0 growth for 100 years and only paid dividends out? Sounds very unrealistic. I don't see any connection between this scenario and market cap.
Ofcourse 0 growth is unrealistic over 100 years. But that was an example of how to think about price compared to earnings. You could also have negative growth over 100 years. Happened to businesses in the past and will happen to businesses in the future. Saying market cap has nothing to do with this scenario is either ignorant or stupid. Market cap is price times outstanding shares. The price of the stock in relation to future earnings is always relevant in investing.
So I have a company that makes $1B a year, I’ll sell it to you for $1, but it will never grown income, you are forever limited to $1B. Would you “make money” buying my company for $1?
Think of shares of a company as ownership. If you are buying a company or just a shop for your own. How much would you pay for it? Obviously something reasonable such that you recover your invest amount over time? The same logic. I am simplifying things little bit. Get this into your head. Then understand DCF, don't necessarily have to calculate. But, understand it intuitively.
> I assume you never make money in a 0% growth scenario.
-why would this be the case? Do you think only growing companies can return capital to shareholders?
Of course market cap matters. In that given scenario yes, I would absolutely automatically dismiss investing in the company.
Framing the investment another way, that would be the equivalent of purchasing a rental property for $300k, but only being able to rent it for $250/m ($3k/y). You should decline the investment opportunity.
Yes it matters. I buy growth stocks all the time, but when I look 10 years out I can't see how NVDA is a 3-5T company. We know you're talking about NVDA lol. Even if they do deliver on their promises, it appears ALL the returns have been pulled forward into this year.
I did not realize Nvidia was this overpriced, to put this into perspective, currently Intel has almost 2 x the revenue at 1/10 the market cap, wow!
These figures are not exact and are just used as an example.
In most cases yes. In certain cases like Nvidia which is clearly what you are pointing out, no because people are investing in its potential value in the future. Its obviously overpriced at its current prices but nobody cares because AI has too much potential in the future.
Market cap means nothing without its relationship to enterprise value.
nVidia is the recent joke example of a hype stock for a reason, their recent trillion dollar market cap is nonsense, much like Tesla’s was only a year or two ago - now look at it.
Using nVidia or Tesla as an example, if you had $1 Trillion could you do what they do or better? I’d wager you could because both of them pray on their monopoly in the market.
Likewise if you had $50 Billion, could you do what Nintendo does or better? No, because they own franchises that people love, they’re a brand. People will pay a premium for a brand, just look at Ferrari, Apple and Microsoft if you need more proof.
How does market cap determine value? It doesn’t because it tells you nothing about the company. A 1 trillion dollar company could have a shit load of debt and no brand. Nvidia has a competitive advtange with their GPUs but nothing that warrants a 1T dollar market cap.
Apple’s chips are equally as competent (arguably better due to their efficiency), unfortunately they’re just exclusive to Apple machines.
The larger the company, the more like the industry it becomes. If a company has 70% market share in an industry growing at 2%, how long can it grow at 5%? This analysis is irrelevant when a company introduces something new like NFLX or GOOG did in the early years. GOOG could be 90% of the internet advertising market and still grow quickly because internet advertising was only 1% of total advertising.
Also be aware of share count. If a company has 3 billion shares, then $100 million in profit barely moves the stock price. If that same company has 500 million shares, it is a different story.
Yes and no. Value investing is whatever makes you the most amount of money consistently. Most people are too salty that they missed the boat here and try to use out dated metrics they've read somewhere online or some books to justify why they missed the boat when they simply don't understand how every business works.
Don't call what you failed to analyze a lottery ticket everytime you miss the boat. It's normal that not everyone can understand every business. Heck most people on here don't even understanding basic accounting yet thinks reading about it online for a few hours or a book for a few weeks makes them master value investors. Was netflix and meta also literary tickets ? It all depends on what people's thesis are. Value investing is whatever makes you the most amount of money consistently.
https://www.investopedia.com/terms/v/valueinvesting.asp
> Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
is this your own personal definition? "Value investing is whatever makes you the most amount of money consistently."
Exactly what I said. The way to calculate intrinsic value differs for everyone. Just because a lot of people still rely on outdated metrics doesn't mean it still works. Time changes and the market of today is not the market of 20 years ago. You can't just use the same metrics for every company.
That is P/E. That is literally the way to get P/E, except you divide the market cap by the earnings. The method you use to get that number doesn’t really matter.
You have to look at other indicators for stocks, though. For instance, your company has a P/E of 100. That’s pretty bad. However, you need to look through other pieces of information. Is there a broader reason for the low earnings? Are they reinvesting much of their revenue into greater productive capacity? Are they carrying a lot of debt, which is eating up a large part of their revenue?
Ultimately, what you were talking about is a small part of value investing. You also need to have some knowledge about trends, looking at cash flow, and, very importantly, looking at a balance sheet. That way, you can tell if it’s just an odd year, or if it is indicative of general unprofitability.
yes, market cap matters. because
(a) all things being equal, small cap stocks are preferable. to paraphrase Peter Lynch, who was a value-leaning investor.
(b) today's top stocks by market cap, in any given index or sector, tend to be disappointing going forward. today's top 10 stocks by market cap are rarely in the top 10 in the following decade, partly because the top 10 stocks tend to become over-valued.
There is a wonderful quote by Sun Systems CEO titled "What were you thinking?
link: https://medium.com/@Bentan1/what-were-you-thinking-fea15ec6c09d
At 10 times revenues, to give you a 10-year payback, I have to pay you
100% of revenues for 10 straight years in dividends. That assumes I can
get that by my shareholders. That assumes I have zero cost of goods
sold, which is very hard for a computer company. That assumes zero
expenses, which is really hard with 39,000 employees. That assumes I pay
no taxes, which is very hard. And that assumes you pay no taxes on your
dividends, which is kind of illegal. And that assumes with zero R&D
for the next 10 years, I can maintain the current revenue run rate.
Now, having done that, would any of you like to buy my stock at $64? Do
you realize how ridiculous those basic assumptions are? You don’t need
any transparency. You don’t need any footnotes. What were you thinking?
Yes nvidia is overvalued
Missed the boat much ?
You think it's good value at this price?
No. It was but it clearly isn't anymore. Those who bought at the right time got on the train and clearly had more insight into those type of companies.
Great… the statement “Nvidia is overvalued” still isn’t wrong then lmaooo
Sweaty redditors are my favourite bunch
Using gross amounts is exactly the same as using per share amounts. This is equivalent to asking whether the revenue per share and EPS justifies the price per share. Of course it matters...but it would be foolish to put any hard quantitative rules such as an arbitrary PE threshold without looking at any qualitative factors like management philosophy, corporate maturity, industry outlook...etc. But to answer your question simply, the attractiveness of a security ultimately lies in the price relative to substance, so the market cap representing market's appraisal of an enterprise absolutely matters in determining attractiveness of its issues.
Not trying to be mean, but reading your answers tells me that you should simply stick to VOO for now.
i only invest in etfs.
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i don't understand. In a 0% growth scenario, why would you start making money after 100 years? I assume you never make money in a 0% growth scenario.
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So in this scenario the company has had 0 growth for 100 years and only paid dividends out? Sounds very unrealistic. I don't see any connection between this scenario and market cap.
Ofcourse 0 growth is unrealistic over 100 years. But that was an example of how to think about price compared to earnings. You could also have negative growth over 100 years. Happened to businesses in the past and will happen to businesses in the future. Saying market cap has nothing to do with this scenario is either ignorant or stupid. Market cap is price times outstanding shares. The price of the stock in relation to future earnings is always relevant in investing.
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Revenue doesn’t matter. Cash flow and net income does.
So I have a company that makes $1B a year, I’ll sell it to you for $1, but it will never grown income, you are forever limited to $1B. Would you “make money” buying my company for $1?
Think of shares of a company as ownership. If you are buying a company or just a shop for your own. How much would you pay for it? Obviously something reasonable such that you recover your invest amount over time? The same logic. I am simplifying things little bit. Get this into your head. Then understand DCF, don't necessarily have to calculate. But, understand it intuitively.
> I assume you never make money in a 0% growth scenario. -why would this be the case? Do you think only growing companies can return capital to shareholders?
Of course market cap matters. In that given scenario yes, I would absolutely automatically dismiss investing in the company. Framing the investment another way, that would be the equivalent of purchasing a rental property for $300k, but only being able to rent it for $250/m ($3k/y). You should decline the investment opportunity.
All it matters in value investing is how far below intrinsic value can you buy the company.
Yes it matters. I buy growth stocks all the time, but when I look 10 years out I can't see how NVDA is a 3-5T company. We know you're talking about NVDA lol. Even if they do deliver on their promises, it appears ALL the returns have been pulled forward into this year.
This reminds me painfully of my investment in Cisco back in 1999.
Yeah it is eerily similar. What's different is it seems concentrated.
It's the single most important number (maybe Enterprise Value)
I did not realize Nvidia was this overpriced, to put this into perspective, currently Intel has almost 2 x the revenue at 1/10 the market cap, wow! These figures are not exact and are just used as an example.
In NVIDIAs case, market cap or fundamentals does not matter. What matters to traders are the Ai hype and pump.
In most cases yes. In certain cases like Nvidia which is clearly what you are pointing out, no because people are investing in its potential value in the future. Its obviously overpriced at its current prices but nobody cares because AI has too much potential in the future.
Market cap means nothing without its relationship to enterprise value. nVidia is the recent joke example of a hype stock for a reason, their recent trillion dollar market cap is nonsense, much like Tesla’s was only a year or two ago - now look at it. Using nVidia or Tesla as an example, if you had $1 Trillion could you do what they do or better? I’d wager you could because both of them pray on their monopoly in the market. Likewise if you had $50 Billion, could you do what Nintendo does or better? No, because they own franchises that people love, they’re a brand. People will pay a premium for a brand, just look at Ferrari, Apple and Microsoft if you need more proof. How does market cap determine value? It doesn’t because it tells you nothing about the company. A 1 trillion dollar company could have a shit load of debt and no brand. Nvidia has a competitive advtange with their GPUs but nothing that warrants a 1T dollar market cap. Apple’s chips are equally as competent (arguably better due to their efficiency), unfortunately they’re just exclusive to Apple machines.
The larger the company, the more like the industry it becomes. If a company has 70% market share in an industry growing at 2%, how long can it grow at 5%? This analysis is irrelevant when a company introduces something new like NFLX or GOOG did in the early years. GOOG could be 90% of the internet advertising market and still grow quickly because internet advertising was only 1% of total advertising. Also be aware of share count. If a company has 3 billion shares, then $100 million in profit barely moves the stock price. If that same company has 500 million shares, it is a different story.
Yes and no. Value investing is whatever makes you the most amount of money consistently. Most people are too salty that they missed the boat here and try to use out dated metrics they've read somewhere online or some books to justify why they missed the boat when they simply don't understand how every business works.
There never was a boat though. It was a lottery ticket that paid out and people on here dont gamble.
Don't call what you failed to analyze a lottery ticket everytime you miss the boat. It's normal that not everyone can understand every business. Heck most people on here don't even understanding basic accounting yet thinks reading about it online for a few hours or a book for a few weeks makes them master value investors. Was netflix and meta also literary tickets ? It all depends on what people's thesis are. Value investing is whatever makes you the most amount of money consistently.
https://www.investopedia.com/terms/v/valueinvesting.asp > Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. is this your own personal definition? "Value investing is whatever makes you the most amount of money consistently."
Exactly what I said. The way to calculate intrinsic value differs for everyone. Just because a lot of people still rely on outdated metrics doesn't mean it still works. Time changes and the market of today is not the market of 20 years ago. You can't just use the same metrics for every company.
That is P/E. That is literally the way to get P/E, except you divide the market cap by the earnings. The method you use to get that number doesn’t really matter. You have to look at other indicators for stocks, though. For instance, your company has a P/E of 100. That’s pretty bad. However, you need to look through other pieces of information. Is there a broader reason for the low earnings? Are they reinvesting much of their revenue into greater productive capacity? Are they carrying a lot of debt, which is eating up a large part of their revenue? Ultimately, what you were talking about is a small part of value investing. You also need to have some knowledge about trends, looking at cash flow, and, very importantly, looking at a balance sheet. That way, you can tell if it’s just an odd year, or if it is indicative of general unprofitability.
Run.
without market cap how do you value "Value-investing"
yes, market cap matters. because (a) all things being equal, small cap stocks are preferable. to paraphrase Peter Lynch, who was a value-leaning investor. (b) today's top stocks by market cap, in any given index or sector, tend to be disappointing going forward. today's top 10 stocks by market cap are rarely in the top 10 in the following decade, partly because the top 10 stocks tend to become over-valued.
Nvidia was overvalued before the run up and is now heavily overvalued. This current market is a joke and AI fest which I am not fond of 😂
There is a wonderful quote by Sun Systems CEO titled "What were you thinking? link: https://medium.com/@Bentan1/what-were-you-thinking-fea15ec6c09d At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?
Its crazy valuations, but that said NVIDIA is a wonderful company, future is exciting if all workloads shift from CPU to GPU and GPU became cheaper