The Intriguing non-relation Between eBay Fair Value Price and Its Share Price
Many of us believe a relation exists between a company Fair Value and its stock price. I used to use, in addition to other key indicators, Company Fair Value to decide if I should buy or not a company stocks. In here, I will show you that a company stock price depends mostly on how much one is willing to pay.
In my book "Spot Financial Shenanigans", purposefully, I put eBay Fair Value price of $45.00 from 2006. Now, if you look at the following chart, you will notice eBay stock price reached $45.00 not until the end of 2012. Furthermore, the stock closed at $32.90 in 2006, went all the way to $39.02 in September 30th, 2007, and then, in December 2008, crashed to a low $12.02, or 63.35% decline from its 2006 value. The crash had to do mainly with the financial meltdown and the economy. From the chart, you will also notice that positive earnings didn't translate into higher stock price.
So, what is the point of the story, a company valuation is in the eye of the beholder. Fair Value has a place and a reason for its existence, but not as a predictor of what investors or traders are willing to pay.
No comments:
Post a Comment