When evaluating whether a company's stock is worth buying, we need to find an effective valuation method to evaluate. In this article, we text message service will talk about the core idea of valuation—the theory of free cash flow discounting in terms of choosing a blind date. 1. What should the output of fundamental analysis be? Wuliangye's performance is expected to be good in the past one or two years, but it has doubled. What price is reasonable? Haitian Flavor Industry is a good company, but is there a bubble in the 40 times price-earnings ratio? Why do pharmaceutical stocks with similar performance have a price-earnings ratio of 50 times and some only 15 times? ... Many times, we find that after the company's analysis is very clear, we still don't know whether to buy or not. After a hesitation,
the stock price has risen, and we feel that we have been busy. But I found that many people lack a clear goal when analyzing the value of a company, and only get the conclusion of a "good company" or "mediocre company", which makes the text message service value analysis a castle in the air. There is only one purpose in analyzing a company - a reasonable valuation range. No matter how good the company is, the valuation will not rise to the sky. In fact, most of the time, such companies are very expensive and not worth buying; and companies worthy of our analysis, even if they are mediocre,
will not be bad. It may now be substantially below a reasonable valuation. So, this week, I temporarily changed my plan, first inserting the core idea text message service of "valuation" - the theory of discounted free cash flow, and then go back to the business model. Two, three blind date objects Discounted free cash flow is a very abstract theory, so I will use the very specific thing of "blind date" as an analogy. If your relatives have arranged for you three blind dates, their annual net income (income minus living expenses) last year are: Young Men A: 150,000 Young Men B: 100,000 Young Men C: 500,000 Assuming that "money" is the criterion for choosing a mate, your choice seems to be C. But in fact, you will not be so simple-minded, marriage is a lifetime thing, how can you just look at money? Also see how they make their money: Young male A, a famous school and a famous company with a good major.