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The problem with this analysis is that it ignores current valuation. What if somebody offered to sell you 1,000 shares of ford right now for $1 each? Would you
by dkrich 10y ago
The problem with this analysis is that it ignores current valuation. What if somebody offered to sell you 1,000 shares of ford right now for $1 each? Would you buy? Of course you would because you know that the value of one share is much higher than $1. So despite whether you think Ford has room to grow, it's very possible that the market is simply undervaluing it as a company, all things considered- assets, brand value, liabilities, etc.
The question isn't necessarily "can this company grow?", it's "what is the value of this enterprise as a cash-generating vehicle?"
- aerovistae 10y agoBut I would only buy the $1 shares because I know the market value is $11. I can see that incontrovertibly. If they offered it at $11 and we were hypothesizing the real value is yet higher still, I would have no way of knowing that the market will soon come to realize the "true value" and increase the price. It would be a gamble of me betting the market comes to realize they've undervalued the company.
- dkrich 10y agoOf course. But your original point was that the only thing to consider is future growth potential and because only Tesla has room to grow that it is a better investment than Ford. My point was that regardless of growth prospects, a company can be undervalued and be a great investment if growth stagnates or even goes down. That is the basic idea behind value investing and what made Warren Buffett the 2nd wealthiest person in the world.