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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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Bumper GAA weekend in town

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Killarney is set for a bumper GAA weekend as Kerry faces Cavan in a do-or-die All-Ireland Senior Football Championship preliminary quarter-final.

The game is scheduled for Saturday, June 21st, at Fitzgerald Stadium in Killarney, with a 3:30pm throw-in and traffic and parking restrictions will be in place on the bypass and on all approach roads.
Kerry will be looking to recover quickly from their recent defeat to Meath in their final round-robin match.
The match will be streamed live on GAA+. Radio Kerry will provide live commentary with Timmy Moynihan and Ambrose O’Donovan. Jerome Henry will officiate the match.
This game is one of four All-Ireland SFC preliminary quarter-finals. The other Munster county still in the championship, Cork, will play Dublin at Croke Park at 6:15pm on Saturday, with that game also broadcast on GAA+.

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Killarney café to host free event in aid of local charity

A local cafe in Killarney is hosting an event to celebrate cherished sporting memories in Killarney. The event is taking place in Clann Housing, Coill na Darrach on June 28 […]

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A local cafe in Killarney is hosting an event to celebrate cherished sporting memories in Killarney.

The event is taking place in Clann Housing, Coill na Darrach on June 28 and it is part of the wider Alzheimer Society of Irelands sporting memories initiative.

There will be stories, photographs, and memorabilia shared on the day.

The Alzheimer Society of Ireland is organising a sporting memories initiative which aims to harness the power of sport to spark memories and create connections with people living with dementia.

John Don O’Donoghue, who is a joint organiser of the event, is emphasising the importance of events like these for those who suffer with dementia.

He said: “They offer people, especially older adults and those living with dementia, a meaningful way to reconnect – not just with their memories, but with each other. We’ve seen first-hand how powerful it can be when someone’s face lights up remembering a match, a goal, or a moment they thought was long forgotten.”

All members of the community are welcome to attend and take part. The event is free and guests are encouraged to bring their own photos, memorabilia and stories to share.

For more information, please contact: Triona Heffernan or John Don O’ Donoghue Email: soccermemoriescafe@gmail.com

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