Good Investment Theses: VALUATIONS w/ FUNDAMENTAL ANALYSIS Message Board

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Strategies & Market Trends : Good Investment Theses: VALUATIONS w/ FUNDAMENTAL ANALYSIS

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To: Edwarda who wrote (152)	6/30/1999 1:11:00 PM
From: Chuzzlewit	of 160

Okay. This was my latest post on the NETA thread: exchange2000.com The debate over "fair value" takes on almost mystical overtones. While the concept makes good legal and economic sense when dealing with buyers and sellers with access to the identical information (which is the general economist's caveat), it makes little sense in the context of share buy-backs. Clearly, the company has access to much greater amounts of information than the shareholder. Thus, I argue that in such circumstances the price of the stock is not necessarily the fair value. The appropriate theoretical approaches are comparisons to similar companies or a DCF approach based on free cash flow. Unfortunately, management's superior access to information compromises these metrics as useful benchmarks when management engages in share repurchase solely to support stock prices. Nevertheless, I think that it is possible to find stocks that are "undervalued"- primarily if they are small to mid-cap companies with little analyst following, and where obtaining news requires some digging. TTFN, CTC

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