GREY:HRIVF - Post by User
Comment by
bart_dcon Jan 07, 2010 10:09am
187 Views
Post# 16648940
RE: RE: RE: way over valued
RE: RE: RE: way over valuedIF a price cashflow of 10 would be the average in the sector and the company has a cashflow of 50 mio then
the company should be worth 500 mio.
Let's assume there are 100 mio shares then each share would be worth 5.
IF this company was trading at 2 (200 mio market cap) and would issue 50 mio shares at 2 what would the company be worth at that moment?
IF the company wouldn't use the proceeds to invest but just let it sit on the bank account than the company would still be worth 500 mio (10x cashflow).
You would say that this company is worth 200 + 100 mio = 300 mio / 150 = 2 so no reason for the price to go up.
I would say that the company is worth 500 / (100 + 50) = 3.33
and would be VERY happy to buy your shares!!!
The mistake you are making is in ASSUMING that the price of HRG prior to the stock issuance was/is the fair price and that is totally WRONG!
It's even a positive that there is some dilution because the risk of default is lowered and thus a lower risk is used in the discounted cashflow model thus the value goes up.