The Steps to Finding the Value of a Stock

So, what is valuation? Find out in the video above!

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--Video Editing by Justin Nelson--

When I talk about valuation, I know a lot of folks THINK they know what it means.

I talk to a lot of new investors or even financial experts and they tend to value companies at their public market cap. The company and its success are defined by its stock price. If a stock is up the company is doing well, and if the stock is down the company is performing poorly.

As a value investor, I’ve learned to separate the company and the stock price. This typically doesn't go over well when I talk to normal folks out there.

We chat about a stock, they only mention the stocks performance and when I tell them what I think the company is truly valued at, they look at me like “what the hell are you talking about”. A good example of this is Tesla.

A company has a certain number of shares which are basically like pieces of a pie. These numbers can get into the 10s of millions. If you buy a share and become a shareholder, you are literally a co-owner of the company, its revenue, its assets, and its cash in the bank.

If a company gets liquidated or bought out, you literally get a deposit of what your share value is worth. A company’s market cap, or worth, is simply their total number of shares in the world multiplied by the share price. For example, at the time of this recording, Tesla’s shares outstanding are 1.036 billion shares, each valued at $745 dollars per share.

Multiply these two numbers together and you get Tesla’s market cap of $768 billion. This is what the world thinks Tesla is worth.

Consequently, Tesla has only delivered 310 thousand cars in 2022. In the same timeframe, Ford has sold 760 thousand vehicles. Double that of Teslas. But Ford’s market cap is only 48 billion.

So what gives?

Why is Ford’s market cap 1/16 of Tesla? This is the definition of an ovevalued company. They literally make less similar products, yet their company is “valued” over 15 times more. What’s baked into Tesla’s price is the excitement and emotion people have over a company that “could be” the next best thing.

So this is your task: find great companies at UNDERvalued pricing, and not overvalued pricing. You don’t want to overpay.

The valuation is subject to how the company is performing. How their sector is performing. How needed is their product. It’s subject to whether the CEO gets caught in fraud. It’s subject to the excitement around the company or lack thereof. People are excited about Elon Musk, the future of electric cars, and Tesla. No one is excited about Hewlitt Packard. It’s a boring company, it's not in the news, and no one cares about them. All of the concepts make up the company's public valuation. But it doesn’t mean that the company is properly valued.

[ferdin]

where'd you bud. Miss seeing you on the channel

[gnasty]

You still have a lot to learn about valuation of a company amigo you’ll look back on this video and say “damn I had a lot to learn about investing back than”. I can tell your new to investing based on your video on valuation

[Kris-iurv]

Great great contents! I gotta admit that I am so into buying goods in a discounted price and telling everyone that it is dumb if paying a regular price. But I dont do that when I m buying stocks.

[danbuffington]

This video was just a rant about Tesla being overpriced. The closest he comes to addressing the actual title of the video is here: 5:31 In the end, he just says that it's up to you to figure it out and not overpay. I wish he actually answered the question. Now I'm going to go select "don't recommend channel"

[cruzcustio]

I want to see more episodes of Paul's Court

[Skizi]

i like when seth speak to us like a normal person. LUV you uncle sethy

[rich]

I could use the advice from the EM community. I’m saving for an investment property, should I keep putting money in my savings account and except losing buying power to inflation or put my money in a low fee ETF and roll the dice in this volatile market? Thanks

[jessecuster]

I’m still struggling to value a stock… 😞
Can I have some more help or can you do some more beginner videos please ?

Love the channel!

[teslapassion]

Too say that ford and Tesla makes the same product is like saying Nokia and apple makes the same product🤷‍♂️

[bswft]

If the value of a company is the present value of future cash flow, then maybe Tesla’s “overvaluation” relative to Ford indicates the market thinks Tesla has more “future cash flow” then Ford….? Just saying

[camronsmith]

"and most of cathie woods" HAHA

[sickestsoup]

Which movie is the scene from at 0:30?

[DanWeston]

I understand you guys are trying to simplify investing for the everyday person but come on Seth this is amateurish. Nobody in this world would value Ford to Tesla on a multiple of car production, at the most basic level of investing Tesla deserves a higher terminal multiple because they have a much brighter future than Ford. Deciding what these projections are takes a lot of work and thought for an investor, unlike your stock analysis videos where you just throw random numbers into it. This doesn't mean valuation doesn't matter but again valuation doesn't live in a vacuum it is only part of an investing process. Intel makes more chips per year than AMD how is that working out for you guys????

[Neighborhoodgoguy]

Seth you made me smile that entire video 🤩

[danielng]

Tesla is the Air Jordan. Don't underestimate it. Still waiting for the big drop you predicted and I waited when it was $600 coz of this channel ...

[TheHomeHandyman]

First - I do not buy any stock recommendtions that YouTubers suggest. I listen to the good channels for updates and see what they think of certain companies. At that point if I am remotely (many are BS hype stocks etc-) i will dig deeper into their financials and read more news reports about the company. One of these characters on here was stating we are now in a bull run and not to worry about a recession. I assume this same YouTuber believes in the tooth fairy.

[aJ.]

Biggest Fan Boy: Meet Kevin. He spend close to $250K on Tesla this week

[martinsoos]

You are both right and wrong on Tesla. Tesla is a growth stock. It is growing at %50 per year not 25. It makes a difference. You should look at the old charts of INTC and you will see another example of this. And like Intel, when Tesla becomes a value stock rather than a growth stock everyone is going to lose %90 of their stock "value". Until then buy low, sell high, and watch Musk yank everyone's chain. :=)

[moogyjones]

daddy seth bringin' the value investing meth

[somonosotrooooo]

an electric car is a TOTAL different product than an ICE car