Re:Show HN: Invest systematically in deeply undervalued comp...
by jfengel on Thursday September 17, 2020 @01:30PM
(#24507438)
Unfortunately, the same rule that applies to shorting overpriced companies ("The market can remain irrational longer than you can remain solvent") also applies to going long on underpriced ones. They can remain underpriced indefinitely.
The formula is reasonably well founded, as far as it goes. Take the cash and debt into account, figure that as a ratio to past revenue, and you can figure out what a stock "should" be worth -- if its revenue persists.
But the stock price may not reflect that for a lot of reasons. A value investor should look into the market, management, and other broader conditions as well. This is a decent metric to start with -- one that you kinda don't need to pay them $200 a year for. Especially since a value investor would buy and hold.
The formula is reasonably well founded, as far as it goes. Take the cash and debt into account, figure that as a ratio to past revenue, and you can figure out what a stock "should" be worth -- if its revenue persists.
But the stock price may not reflect that for a lot of reasons. A value investor should look into the market, management, and other broader conditions as well. This is a decent metric to start with -- one that you kinda don't need to pay them $200 a year for. Especially since a value investor would buy and hold.