academics and traditional financial analysis (DCF, EVA, etc.) preach that the theoretical valuations of stocks increase exponentially with lower bond yields....
.... however, i saw a detailed historical study which demonstrated that the actual P/E ratios of stocks wasn't really affected by bond yields. wish i could remember where i read it, because the evidence/proof was quite convincing.
all that aside, i am strongly opposed to using DCF analysis anyway because there are just too many blind assumptions that are made. and a slight change in any one assumption often creates a huge change in the theoretical price target. DCF assumptions are difficult for a stable business, and are impossible within the fast-changing technology industry.
real-options theory tries to address this, but is even more laughably whimsical. and hey!, we are on the amazon thread so this is on-topic: in 1999, i saw joy covey, former amazon CFO, give a presentation on real options theory and how it could be used to value, oh, amazon.com. and guess what, using real-options more than justified amzn's valuation at the time. luckily, i guess, i really didn't understand what she was talking about. there were about 20 of us in the room, the concept was fairly new to most of them. |
