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<blockquote data-quote="clueless" data-source="post: 571546" data-attributes="member: 15572"><p>As far as how a stock is valued--P-Man summed it up pretty much in a nutshell:</p><p></p><p><em>The overly simple answer is that the stock market looks at what current earnings are plus what they think FUTURE earnings will be for that stock stock.</em></p><p><em></em></p><p><em>All things being equal, as earnings grow, stock price should grow. </em></p><p><em></em></p><p><em>Of course there are many other factors, but the growth in FedEx stock is based on the fact that they are (or are seen) as growing. </em></p><p><em></em></p><p><em>P-Man</em></p><p></p><p>Theoretically, the stock price reflects the net present value of expected future cash flows discounted at the cost of capital. Those expected future cash flows involve growth projections. The discount rate is based on perceived risk (as well as the risk free rate of return which is reflected by gov't T bond rates). There are many factors affecting cash flows--these involve economy-related, industry-related, and company-related conditions. For example, the macroeconomy and market share which affect the top-line, operating margins, tax rates, capex requirements, etc. So if assumptions about any of those variable change, the stock price will change. Always, remember, in stock valuation, expectations are critical.</p><p></p><p>As far as the market cap discussion-- for the record, as of this morning (before-the-bell) the market cap of the companies discussed thus far is as following:</p><p></p><p>UPS 53.93B</p><p>FDX 20.80B</p><p></p><p>GOOG 140.15B</p><p>YHOO 24.04B</p><p></p><p>As far as 'valuation', look at relative valuation to compare apples-to-apples--keeping in mind a company is 'cheaper' when it has a lower relative valuation.</p><p></p><p>P/S (how much you're paying for each dollar of sales)</p><p></p><p>UPS 1.13</p><p>FDX .59</p><p></p><p>GOOG 6.31</p><p>YHOO 3.56</p><p></p><p>P/E ( how much you're paying for each dollar of earnings)</p><p></p><p>UPS 26.32</p><p>FDX 212.07</p><p></p><p>GOOG 30.85</p><p>YHOO 5666.67</p><p></p><p>PEG (p/e divided by expected growth rate)</p><p></p><p>UPS 3.14</p><p>FDX 4.59</p><p></p><p>GOOG 1.09</p><p>YHOO 3.08</p><p></p><p>As far as a buyout to go private-- You have to look at enterprise value (market cap + debt - cash), not just market cap, since you need to pay-off the debtholders as well as the shareholders, but when the company has cash on its books, that will mitigate some of the cost. It would, in theory, require approximately $62B to acquire the company (the L-T debt is about $9B, S-T portion of L-T debt around $3B and cash around $4B). However, in practice, a premium must almost always be added to the current stock price to get shareholder approval for the deal. So, it would be more than $62B in reality.</p></blockquote><p></p>
[QUOTE="clueless, post: 571546, member: 15572"] As far as how a stock is valued--P-Man summed it up pretty much in a nutshell: [I]The overly simple answer is that the stock market looks at what current earnings are plus what they think FUTURE earnings will be for that stock stock. All things being equal, as earnings grow, stock price should grow. Of course there are many other factors, but the growth in FedEx stock is based on the fact that they are (or are seen) as growing. P-Man[/I] Theoretically, the stock price reflects the net present value of expected future cash flows discounted at the cost of capital. Those expected future cash flows involve growth projections. The discount rate is based on perceived risk (as well as the risk free rate of return which is reflected by gov't T bond rates). There are many factors affecting cash flows--these involve economy-related, industry-related, and company-related conditions. For example, the macroeconomy and market share which affect the top-line, operating margins, tax rates, capex requirements, etc. So if assumptions about any of those variable change, the stock price will change. Always, remember, in stock valuation, expectations are critical. As far as the market cap discussion-- for the record, as of this morning (before-the-bell) the market cap of the companies discussed thus far is as following: UPS 53.93B FDX 20.80B GOOG 140.15B YHOO 24.04B As far as 'valuation', look at relative valuation to compare apples-to-apples--keeping in mind a company is 'cheaper' when it has a lower relative valuation. P/S (how much you're paying for each dollar of sales) UPS 1.13 FDX .59 GOOG 6.31 YHOO 3.56 P/E ( how much you're paying for each dollar of earnings) UPS 26.32 FDX 212.07 GOOG 30.85 YHOO 5666.67 PEG (p/e divided by expected growth rate) UPS 3.14 FDX 4.59 GOOG 1.09 YHOO 3.08 As far as a buyout to go private-- You have to look at enterprise value (market cap + debt - cash), not just market cap, since you need to pay-off the debtholders as well as the shareholders, but when the company has cash on its books, that will mitigate some of the cost. It would, in theory, require approximately $62B to acquire the company (the L-T debt is about $9B, S-T portion of L-T debt around $3B and cash around $4B). However, in practice, a premium must almost always be added to the current stock price to get shareholder approval for the deal. So, it would be more than $62B in reality. [/QUOTE]
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