Hi Rainier, EBITDA minus cap ex is (also) the Mario Gabelli method of gauging a company's value. I had a few links printed out regarding EBITDA and various other valuation methods, but they're all more than 12 months old, and not a single one of the links still exist.
As far as this method of valuation, there are those that make fairly good arguments against the EBITDA-based method of valuation. Essentially, their argument is (in my words):
Although the EBITDA-based methods take a LITTLE more work than the lazy-man's valuation gauge (P/E), they fall far short of DETAILED cash flow analysis (which requires special trade-offs and allowances for different industry groups, among other things (enough to fill an entire book on the subject)).
The million dollar question is: does all this extra work gain you anything from an investment performance standpoint (and were talking LOTS of extra work...many, many hours, compared to 2 seconds with the lazy-man's valuation gauge)?
The common belief among pure value players is that true value will eventually be recognized and rewarded by the market. Of course, this assumes the "value" continues to persist for the entire period that the market is "looking the other way." I'd kind of re-word this statement as follows: True value, as defined by valuation method "X" will eventually be rewarded by the market as soon as valuation method "X" comes (back) into vogue, and thereby creates demand for stocks which meet the criteria of valuation method "X". The mere fact that some financial ratio or calculation is at a specific level does not--in and of itself--CAUSE the stock price to increase. Only when enough people USE this criteria to arrive at "Stocks to BUY" does it contribute to an increase in demand for the stock. Just my (as usual) twisted view of pure value plays.
dh |
