4 ms·

One must be careful to avoid a "value trap". Occasionally, a company is inexpensive for a reason, and that reason can be hard to discern at a glance.

• __blockcipher__ 8y ago
  That is of course true. However, I've noticed many seem to justify any stock price being low as the market already pricing in all the information. However when you look at AAPL's valuation 1-2 years ago, shares went down to a low of around $90, which was only like 6-7 FCF or so (it's a little complicated cause you had to subtract apple's cash hoards but also multiply by some uncertainty factor < 1 that represented the probability that they would be able to bring the money back). Meanwhile you have companies like MSFT, etc which while growing at a fast rate, are far, far more expensive on a FCF yield basis. Ultimately - and this is pretty obvious but worth stating - you have to come up with your own valuation for a given company when making investment decisions.
• aaavl2821 8y ago
  That's a risk, but ROIC is supposed to somewhat counter that by ensuring the company is creating earnings from its invested capital (i.e. It's a "good" company). Can also only include large cap stocks and diversify to remove some of this risk