Humble Student Of The Markets: September 2021

  • Look for the generic or store brand. Before we look at the world of online trading, let's take a quick look at the basics of the unique boutique market. With forward multiples, check on and control for dilution: Analysts, when valuing young companies, often divide today’s market capitalization or enterprise value by expected revenues or EBITDA in the future. Carried into future forecasts, this will inflate future earnings and cash flows, pushing up estimated value. The dilution that will be needed to get to future EBITDA has to be brought into the equation. So, if you have stashed something extra which is just sitting around your house gathering dust, why not get it to work for you? Zanett Inc. (ZANE) - Shares of Zanett Inc. seem to have calmed down now, the volume is weak but still worth watching. American Intl Group, Inc. (AIG) - Shares of American Intl Group, Inc. jumped on the Goldman Sachs news as traders bought the stock thinking AIG could get some of settlement money if Goldman does infact settle.


    Advanced Micro Devices Inc. (AMD) - Shares of Advanced Micro Devices cleared $9.30-$9.40 resistance on Wednesday and now appear to be headed to $10. Following the more than $10 billion in debt reduction during 2007, FCX's financial policy was designed to use its cash flows to invest in growth projects with high rates of return and return excess cash flows to shareholders in the form of dividends and share purchases. If the market was attaching a premium to the cash (viewing it a strategic asset), a buyback will decrease the stock price. It was a tough year where we see the beginning of the bear market. My interest in Facebook dates back to the year before it went public, when it was already getting attention because of its giant user base and its high private company valuation. In the weeks leading up to its IPO, I valued Facebook at about $29/share, with a story built around it becoming a Google wannabe.


    In my last post, I noted that the FANG stocks have been in the spotlight, as tech has taken a beating in the market, but it is Facebook that is at the center of the storm. The floodgates on shares with different voting rights opened up with the Google listing in 2004, and the Google model, with shares with different voting rights, has become the default model for many of the tech companies that have gone public in the last decade. Again, the tech boom of the 1990s changed the game, by making the NASDAQ, which had no restrictions on shares with different voting rights, an alternative destination, especially for large technology companies. Don't use SBC adjusted earnings: Adjusting earnings and EBITDA, by adding back stock based compensation, is an abomination, used by desperate companies and analysts to show you that they are making money, when they are not even close.


    The second and even more indefensible practice is to add back share based compensation to earnings to get to adjusted earnings. Thus, to obtain PE, divide the market capitalization of the company by its total net income, rather than price per share by earnings per share. The stock markets in India cater to a wide range of investors with the phased introduction of several stock market instruments across the equity and derivatives markets. Market movements this month had been surrounded with Hong Kong protests and the US-China trade deal situation. Those of you who use multiples (PE, EV/EBITDA) may be secretly happy that you don't have to deal with the issues of share count, since you don't do discounted cash flow valuations. The Right Response: When valuing firms with different voting rights, you have to deal with it in two steps. The second is a unit problem, since a voting right share and a non-voting right share represent different equity claims and cannot be treated as having the same value. Once you have the value of equity, you will have to make a judgment on how much of a premium you would expect the voting shares to trade at, relative to non-voting shares, in one of two ways.



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