31-08-2017, 05:02 PM
I searched the forum for any valuation thread and chanced upon this.
Personally, I do not think EV/EBITDA is useful especially when you are investing in a capex-intensive company.
Look at some airline companies, their depreciation is high and the fleet gets purchases every now and then. If the airlines are using accelerated depreciation approach, depreciation is real costs as it needs to be replaced.
See this link: https://www.oldschoolvalue.com/blog/inve...an-ebitda/
When approaching stocks using discounted earnings model, there are many investors who use different number of discounted years. Some use 10 years, some use 15 years, others use 20 years. With a wide range of years being used, the intrinsic value tends to be skewed towards the investor's liking. "fit into a box" mentality. This model is highly dependent on [1] risk-free rate [2] growth rates [3] earnings per share or free cash flow per share? What if it is wrong? Is perpetual value something to consider since corporate lifespan is getting shorter as well? Garbage in and garbage out.
Anyone struggled with this?
How about P/E? P/E does not consider the cash and debt levels of a company.
So far, what I like is EV/EBIT in comparison with Return on Equity to see the amount I am paying for the 'quality' of management performance. All in all, I guess a combination works and you have to apply your gut feel for it.
Open to discuss so that we can understand valuation better.
Personally, I do not think EV/EBITDA is useful especially when you are investing in a capex-intensive company.
Look at some airline companies, their depreciation is high and the fleet gets purchases every now and then. If the airlines are using accelerated depreciation approach, depreciation is real costs as it needs to be replaced.
See this link: https://www.oldschoolvalue.com/blog/inve...an-ebitda/
When approaching stocks using discounted earnings model, there are many investors who use different number of discounted years. Some use 10 years, some use 15 years, others use 20 years. With a wide range of years being used, the intrinsic value tends to be skewed towards the investor's liking. "fit into a box" mentality. This model is highly dependent on [1] risk-free rate [2] growth rates [3] earnings per share or free cash flow per share? What if it is wrong? Is perpetual value something to consider since corporate lifespan is getting shorter as well? Garbage in and garbage out.
Anyone struggled with this?
How about P/E? P/E does not consider the cash and debt levels of a company.
So far, what I like is EV/EBIT in comparison with Return on Equity to see the amount I am paying for the 'quality' of management performance. All in all, I guess a combination works and you have to apply your gut feel for it.
Open to discuss so that we can understand valuation better.