RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:NoShort - The Bottomless fool, The Tree Planter...."You call it my numbers but I was using your figures of discounting and comment on Ebitda." Here is the relevant part of what I said:
The stock is still overpriced because they are better at hiding behind financial reporting than you are at looking through the veil.
And don't give us the line about health care being defensive, everyone's dog knows that. The critical question is what is fair value for the equity. Probably around $1.75 - $2.00 based on cash flow analysis.
Here is your reply:
Your analysis doesn't account for growth. Fail.
And then I said: which analysis?
To which you replied: Your analysis that suggests a roughly 300 million market cap is an appropriate valuation. Which is half their current yearly revenue. Since when do we assess multiples in fractions of their current revenue and also attribute no value at all in their proven ability to grow?
And my response:
There are at LEAST two things you don't understand:
- you need to look at enterprise value, not market cap
- how to look at companies that inflate revenues using partial acquisitions and accounting consolidation. you are using the wrong (inflated) revenue number
My analysis DOES take growth into account, as well as all the other factors that play into the valuation. I first started digging into this stock about a year ago.
Fundamentals are decent, valuation is not, and management seems to be a little too into "capital allocation" and stock management for my tastes. Still a pass.
And your response was:
I do understand the concept of enterprise value and that it reflects factors like debt and their cash position but even when you factors those things in on top of the 300 million dollar market cap reflected in the $1.7 share price you think it should be you are still left with approximately a 1:1 ratio (which itself isn't even a multiple). Stock prices are almost always a "multiple" and the reason for that is that there is an expectation they will continue to grow (which well has proven themselves to be able to do beyond expectations). You seem to say you have accounted for growth but you also suggest they don't even deserve to be accorded a "multiple" to reflect that.
So clearly, we are using your numbers, not mine. And your numbers agree with mine. And just as clearly, you seem to be struggling with the concepts of enterprise value and capital structure. - - - - - - -
I then implied the multiple which usually indicates a "BUY" according to general consensus. AFTER that calculation you subtract all of their debt and mention nothing of the fact that they also have many assets and ownership rights of minority interests, Intellectual property, long term contracts that have a huge value. Not only do you severely undervalue all of their assets but your calculations also don't at all account for their ability to grow because it is a present day snapshot of their cash flows. Let me explain valuation and multiples a little more. You estimate free cash flows over a period of years, estimate a terminal value, and discount everything back to today. But that is a lot of work. So most people estimate EBITDA 1-2 years out and then just apply a multiple. This is a shorthand way of doing it.
So when you estimate EBITDA and then apply a multiple, that analysis implicitly takes into account all the "many assets and ownership rights of minority interests, Intellectual property, long term contracts that have a huge value." And the choice of multiple takes the following into account "Not only do you severely undervalue all of their assets but your calculations also don't at all account for their ability to grow because it is a present day snapshot of their cash flows."
The only things that get added or subtracted are extraneous assets that aren't involved in cash flow generation (for example, they own land for investment that is worth $100mn but reflected on the balance sheet for the historical price of $20mn - so in this case add $80mn to the valuation).
Note that adding or subtracting net debt is a required step to arrive at equity valuation. So all I did was take your numbers, apply the correct methodology, and came up with $1.75 per share.
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You do all of this with a snide pedantic tone like you know every thing when you tell half the story with a lot of assumptions. There are a lot of assumptions that go into any estimate of value. I make them, you make them. I may not like yours, and you may not like mine. Assumptions are ALWAYS up for debate.
What isn't up for debate is methodology. It's like debating how multipiication or division work. Unless you are secretly working on a PhD in finance, you should stick to what the market uses. And like I said earlier, I don't want you to believe me on methodology, I provided many resources for you to educate yourself.
All right, those dragons are slayed. But in all honesty, your civility could still use some work.
Next question? Next attack?
Noshortsallowed wrote: You call it my numbers but I was using your figures of discounting and comment on Ebitda. I then implied the multiple which usually indicates a "BUY" according to general consensus. AFTER that calculation you subtract all of their debt and mention nothing of the fact that they also have many assets and ownership rights of minority interests, Intellectual property, long term contracts that have a huge value. Not only do you severely undervalue all of their assets but your calculations also don't at all account for their ability to grow because it is a present day snapshot of their cash flows. You do all of this with a snide pedantic tone like you know every thing when you tell half the story with a lot of assumptions.