RE:RE:RE:RE:RE:RE:Bragg Bucking the Trend Today
Higher interest rates affect those borrowing money from a cash flow perspective, but still affect other assets from a valuation perspective as discount rates are increased. Set a very simple 1 year finite life example. Cash flow expected to be $10, discount rate is 5%. My Target Price would be 10/1.05= $9.52. If discount rate is instead 8%, my target price would be 10/1.08 = $9.25. As you can see here, even though there is no debt involved in this calculation, the asset is still worth 9.52-9.25=$0.27 less to me. This is called the time value of money, it is the foundation of finance. The discount rates applied to cash flows will differ from analyst to analyst based on their perceived riskiness of the asset and the premiums they apply to the discount rate, but on aggreggate will increase as the overnight rate increases. Especially for somewhat speculative small cap stocks such as Bragg, rate hikes are not good.