Monday, December 17, 2018

Undervalued

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Undervalued is when an investment is selling for a price below it's intrinsic value. Many methods are used to derive the intrinsic value and a popular method is discounted cash flow. However, some companies are new or in the early stages of growth, therefore they may have temporary low or negative earnings while they spend a substantial amount to grow market share and ultimately future earnings. In that case other measures may need to be used such as price-to-sales and enterprise value (EV) to EBITDA and then compare them to other competing or similar businesses.

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