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Strategies & Market Trends : Value Investing

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To: Bridge Player who wrote (60020)	10/27/2017 9:13:39 AM
From: Graham Osborn	of 78717

It's called "value" investing for a reason :) My point is that the debt load needs to factor into your calculations. You start by figuring out, based on the characteristics of the business, what sort of multiple of different operating metrics of the business you are willing to pay, e.g. revenue, EBITDA, free cash flow. Then you multiply your TTM operating metric by the "fair value" multiple to get the fair enterprise value of the business: fair enterprise value = fair multiple * TTM operating metric The you get the fair market cap: market cap = enterprise value + cash and eq - LT obligations The reason TEVA sells so low right now is it has a huge amount of debt, not much cash, and a lowered multiple as the branded-generic arbitrage becomes less attractive. In order to convince me that TEVA is a buy right now, you have to run that calculation and show that the company is worth considerably more than $14 per share with a healthy margin of safety. With that much debt, I can tell you I have a hard time establishing any margin of safety.

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