Yes joby, it is interesting what each of us use for evaluation purposes.
I, for one, am not a fan of ‘Enterprise Values’ or ‘Book Values’.
EV may be the "theoretical" takeover value of a company, but that doesn’t mean that that’s what someone will pay for the company. And if one has uncovered a really QUALITY company, how likely is it that it’s prepared to sell itself. I’d imagine it’s more likely to want to carry on making those ongoing profits and providing value to very satisfied shareholders.
IMO, much the same can be said for Book Value, which more often than not contains historical entries in its Balance Sheet which may not be that realistic at the present time. Once again, to realise that Book Value the company would have to be "liquidated", and what are the chances of a QUALITY company, "firing on all financial cylinders", of liquidating ?
Personally, I prefer to target those actual "markers" within a company’s Income Statement and Balance Sheet that are INDICATIVE of its current ability to make ongoing profits and provide very good value for its shareholders.
As long as a company can continue to meet, or exceed, those criteria then its overall price trend will be upwards, providing Capital gain and very likely a Dividend thrown in for good measure !
But there again, it’s "each to his own" as they say !! |
