Three Ways to Beat Analysts at Their Own Job by Floyd G. Brown, Advisory Panelist
The problem is that DCF based on computer models with assumptions about future sales, earnings and growth rates. What you end up with is highly subjective.
So what should we look at?
Cash Balances and Debt When the economy turns down, highly leveraged firms get in trouble first. Cash Flow The market will - over time - value cash flow in similar ways. Look for times when the market undervalues a company's cash by finding out how much cash a company is producing today. Cash flow is the lifeblood of a company. You can reasonably expect that Wall Street will appreciate the value of free cash flow in the future, even if the firm is out of favor today.
In the 1990s, oil stocks greatly underperformed the market. But they generated huge amounts of cash. I started buying these deeply undervalued stocks in the late '90s knowing that eventually, the historic cash flow generation would win out.
Can the company continue to generate healthy cash flow and earnings?
Secrets to understanding the picture of any company through their annual report.
The problem is that DCF based on computer models with assumptions about future sales, earnings and growth rates. What you end up with is highly subjective.
So what should we look at?
Cash Balances and Debt When the economy turns down, highly leveraged firms get in trouble first. Cash Flow The market will - over time - value cash flow in similar ways. Look for times when the market undervalues a company's cash by finding out how much cash a company is producing today. Cash flow is the lifeblood of a company. You can reasonably expect that Wall Street will appreciate the value of free cash flow in the future, even if the firm is out of favor today.
In the 1990s, oil stocks greatly underperformed the market. But they generated huge amounts of cash. I started buying these deeply undervalued stocks in the late '90s knowing that eventually, the historic cash flow generation would win out.
Can the company continue to generate healthy cash flow and earnings?
Secrets to understanding the picture of any company through their annual report.
