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These are honest questions: 1) Why should the public fund a company that could not get to profitability before its IPO? 2) Why, in public markets, a business
by rokhayakebe 12y ago
These are honest questions:
1) Why should the public fund a company that could not get to profitability before its IPO?
2) Why, in public markets, a business with $1B in revenue and $10M in net loss has a higher valuation than a business with $30M in revenue and $10M in net income?
- zackbloom 12y ago1) Because members of the public think that the company will succeed in becoming profitable. 2) Because if you can get 10% profit on your $1B in revenue, that's $100M, on $30M it's $3M. Investment is always about looking towards the future, and predicting how well the company will do.
- rcarrigan87 12y ago"Something is only worth what others are willing to pay for it."
- hiddencost 12y agoStock prices reflect investor expectations of what will happen, not just the current state of the business.
- jliptzin 12y agoYou can short the stock if you disagree with its valuation.
- rokhayakebe 12y agoBut shorting does not speak of the value as much as what others are willing to pay.
- tg3 12y agoValue is only what someone is willing to pay for an asset. Shorting the stock allows you to profit off of your knowledge that the stock is overvalued compared to what the market thinks. But remember, the market can stay irrational far longer than you can stay solvent.