Thanks for all the detailed responses. Very much appreciated food for thought.
I have a specific question about the calculation of the fair value. My understanding is that there are two steps:
1. Project the future earning (that is the difficult part)
2. Discount the earnings and get the NPV - the fair value of the company
Currently the interest rates are so low that the NPV will be quite high and not that far from the current valuations. Indeed, this seems to be the rationalization by many for the sky high valuations of today. But this seems wrong to me. What would you advice? Pick some other interest rate, maybe an aspirational rate of return for ones investing? Or don't try to compute the NPV and think in terms of multiples like P/E and P/S?
I have a specific question about the calculation of the fair value. My understanding is that there are two steps:
1. Project the future earning (that is the difficult part)
2. Discount the earnings and get the NPV - the fair value of the company
Currently the interest rates are so low that the NPV will be quite high and not that far from the current valuations. Indeed, this seems to be the rationalization by many for the sky high valuations of today. But this seems wrong to me. What would you advice? Pick some other interest rate, maybe an aspirational rate of return for ones investing? Or don't try to compute the NPV and think in terms of multiples like P/E and P/S?