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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (76651)	12/8/2024 7:24:23 AM
From: Harshu Vyas	1 Recommendation Recommended By E_K_S Read Replies (2) \| Respond to of 78530

When it comes to discounting, I think discounting dividends is the best way of doing it. Because even if earnings/cash flows fluctuate, provided there's some balance sheet strength, dividends should continue to get paid. Of course, dividends can get cut/increased which can provide some fluctuations, too, but there's a much higher accuracy (albeit, still quite inaccurate if done poorly) in doing it that way. I get the argument for discounting cash flows, but it's just too damn hard. And most of time, doing it manually, you end up working backwards. How on earth can any analyst claim they know how much a tech company will spend on capex, for example? AMZN, META etc are too hard to discount for. Same with retailers - results fluctuate too much as demand changes. Discounting cash flows only works for companies like KO imo - where you are able to accurately map out the next decade based on the underlying strength of historical results. Therefore, in most cases, DCFs are fantastical (for me). I found that when a company has had negative FCF for several quarters and turns positive is a good entry point. There maybe several reasons for this but the focus is/should be if this is the beginning of growing FCF over next quarters/years. I think you have to look at the historical numbers and annual figures only. Quarterly figures spike and fall for so many reasons - timing of working capital, seasonality, growth capex... I don't think quarterly FCF is a good measure of value at all and I focus on the EPS for that reason (if I'm actually concerned about quarterly results, that is). Annually, though, I prefer adjusted FCF because normal FCF (i.e OCF minus capex) is manipulated so much these days. A classic red flag is a company cutting back on capex/R&D but continually grows through acquisitions - burning cash, yet is technically FCF positive. That said, if your way works with the expected results, I cannot really fault it.