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How to value a company

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By Michael O’Connor, theislandinvestor.com

Every company valuation is simply numbers from today multiplied by a story about tomorrow.

You have financial statements that give you an insight into how the company is performing at a specific moment in time, but it will be the future growth projections from management and market analysts that ultimately determine the price.

Take Tesla, for instance. Revenue and cash flows provided insight into the company’s performance, but it was predictions about future automated driving capabilities, battery production capacity and a world pivoting towards electronic vehicles that drove the company to its trillion-dollar valuation. Today, the revenue and cash flows are better than they have ever been, but the story about tomorrow has faded, and the company is down almost 60%.

While the numbers from today can be quantified, the story is driven by the future growth possibilities of the company. These future growth possibilities can seem rational at any one moment, but as the economy and company performance change, so do the growth possibilities.

Be careful how much weight you put on the stories the market is telling you about specific companies. As the information changes, so too will the story.

To quote Morgan Housel

“We can use historical data to assume a trend will continue, but that’s just a story we want to believe in a world where things change all the time”

Valuation tips

When valuing a company, you need to listen to the story being told by the company’s management team and assess whether this story is economically viable.

Here are three areas to focus on and some questions you should always ask yourself when valuing a company.

Current Cashflows

Is the company generating the profits needed to fund future business? Are the gross and net margins of the company competitive? How stable has the revenue generation been over time? Has the ROE from management been competitive?

Growth Potential

What has the revenue and earnings growth rate been over time? Are there potential revenue streams not currently being accounted for? Does the company have operating leverage that will help drive future profit margins? Does the company have a durable competitive advantage?

Future Risk

Who are the major competitors in the space, and does the company have an established moat to protect its market share? At what point will the company saturate the market, inhibiting future growth? Is the story currently being told by management viable if economic conditions changes?

Stock Picking is Hard

Since the 1940s, the phenomenal return of the S&P 500 has been generated by just 7% of the companies within the index. That is to say, 93% of the companies that made up the index reported flat or negative returns over time.

Remember, while the stock market has historically provided positive returns, picking individual names remains a difficult feat, with the odds very much stacked against you.

For those who get it right, financial elation awaits. But beware, information is constantly changing, so the probability of success can be lower than you think, no matter how strongly you believe in the future story you tell yourself.

If you have any investing questions, scan the QR code above and reach out. Always happy to help.

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Trilogy of comedy on offer by Dóchas Drama

By Sean Moriarty Dóchas Drama Group will present a series of three short comedy plays next week. All three plays are written and produced by Dóchas and will be acted […]

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By Sean Moriarty

Dóchas Drama Group will present a series of three short comedy plays next week.

All three plays are written and produced by Dóchas and will be acted out by the group’s members.

The opening act, ‘Flossing Around’ is written by Ger Madden and directed by Brian Bowler.

“A woman has an innate fear of the dentist. We go on the journey with her as she faces her fears, with hilarious consequences,” explained the group’s Liz Ryan.

This will be followed by ‘Faraway Hills’ which is written by Mary Quirke and directed by Michael Mills.
It is a tongue in cheek look at family life.

“A son wants to get away from small town life. His mother wants to keep him at home but his father can’t wait to see the back of him,” added Liz, who plays the mother in this short play.

Brain Bowler wrote the third instalment called ‘A Little Visitor’ which is directed by Ryan Jones.

“There are lots of misunderstandings when a hypochondriac visits a group of doctors who have other things on the their minds,” added Liz.

The run, which will feature all three performances each night, starts Wednesday next week and continues Thursday and Friday (February 8 to 10) at the Killarney Avenue Hotel. Tickets are €10 and are available at the door.

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Killarney secures three gold medals in national business awards

Three hotels in Killarney have won gold medals at the Virgin Media Business Gold Medal Awards. Now in its 33rd year, the awards the best of the best in the […]

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Three hotels in Killarney have won gold medals at the Virgin Media Business Gold Medal Awards.

Now in its 33rd year, the awards the best of the best in the hotel and catering sectors across the country.

This year, judges received over 460 entries from 150 hotels, guest houses, country houses, restaurants, cafés, bars and catering companies from around Ireland.

“An important factor in the Gold Medal Awards is the credibility and impartial nature of the judging process. Every property that undergoes this process is subject to benchmarking against a strict set of criteria and a blind site inspection conducted by the judging panel,” said an event organiser.

“This panel comprises respected industry experts from across the hospitality, culinary and catering sectors.”

Three Killarney hotels took top awards in different categories at the awards ceremony held at the Galmont Hotel and Spa in Galway on Tuesday night.

The Great Southern Hotel was named as the best Business and Conference Hotel in Ireland.

“To be recognised among the greatest hotels in Ireland is a marvellous achievement for Great Southern. It is fantastic news and has provided all our staff with a little morale boost. Our Business & Conference partners and customers are extremely important to us with some relationships in place annually for over 30 years. Receiving this recognition for the service we provide is a fantastic achievement and testament to the incredible work of our outstanding staff,” said Michael Jacobi Managing Director said.

The best front of house team award went the staff at the Aghadoe Heights Hotel and Spa.

In the Hotel Casual Dining Experience category the Dunloe Hotel and Gardens came out on top.

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