Facebook (ticker symbol: FB) needs no introduction as the social media network that even has a movie written about it. But it may be less clear whether the stock is a buy or a sell?

Has Facebook grown so large with 1.3 billion plus daily active users that the upside is limited? Or is Facebook just getting started monetizing its massive user base by disrupting email with Facebook messenger, and creating virtual worlds following its purchase of Oculus?

Depending on whether you are an investor or a trader, you will need to examine the company through different lenses.

If you are an investor, fundamental analysis will be important to examine whether the stock is undervalued or overvalued. As a trader, you could look to analyze technical chart patterns.

So is Facebook a buy or a sell?

Facebook Chart Patterns

Technical traders use chart patterns to make buy and sell decisions. When certain FB share price levels are breached, order entries and exits are triggered.

It is tempting to make buy and sell decisions by observing recent share prices. But rather than transacting based on the latest share price movements, which are often random in nature, consider using chart patterns as your guide to making more systematic trading decisions.

Technical analysts or chartists examining FB stock price today may use some of the following chart patterns to make buy or sell decisions.

COMMON FB STOCK CHART PATTERNS

Chart patterns commonly followed by technical traders include:

If you choose to buy or sell Facebook stock based on chart patterns, you will generally want to follow standard technical trading practices, such as setting stop losses to avoid losing more than a fixed amount if FB share price were to move against your expectations.

As a short term trader, pay close attention to the commissions costs of buying and selling regularly as well as the impact of short-term capital gains tax.

While these costs may be a headwind as a technical trader, a tailwind may come in the form of algorithmic trading. But what is algorithmic trading?

ALGORITHMIC TRADING

Algorithmic trading is based on programmed rulesets that execute orders when certain conditions are met.

Some estimates claim that as much as 60% of market trading stems from a combination of passive investing and algorithmic trading.

As a technical trader, you can virtually piggyback on the big money algorithmic traders by betting in the same direction.

But making buy or sell decisions based on Facebook stock chart patterns is not without its risks.

TECHNICAL TRADING RISKS

A primary risk when trading chart patterns comes from the movement of stocks after major news events. Facebook stock news streams all day long but which news events can disrupt its technical trading patterns?

One predictable event occurs quarterly when Facebook announces earnings, the stock price can pop or drop by large percentage amounts. The fundamental news event pays no heed to shorter term technical chart patterns – the stock can gap higher or lower depending on how earnings are received.

If there were only one golden rule to abide by when trading Facebook based on chart patterns, it would be to pay heed to predictable events that could derail its technical trend.

Earnings is one example but legal risks, changes in senior management personnel, acquisitions, and new business initiatives could also substantially impact Facebook share price. Another event which often moves the share price is its developers conference.

If you are concerned about the share price declining following one of these events, a married put is one of the best options trading strategies and a powerful hedging strategy to limit risk.

>> Related: How To Trade Options

FB Stock Price & Valuation

As a fundamental analyst, you can compare FB stock price to its intrinsic value to see whether the FB share price is above or below its fair value.

Another popular approach to making a buy or sell decision is to calculate the fair value of Facebook.

This investing method is common among institutional investors who rely on research from Wall Street analysts to guide investing decisions. This research generally examines key factors that will drive revenue and profitability.

For example, how many daily active users are engaging with Facebook and for how long? How many ads are served and what is the average pricing by region? Do competitors, such as Snapchat and Twitter, pose a major risk to Facebook? Is the market size growing or shrinking?

After a rigorous research, financial analysis is conducted to assess the company’s theoretical fair value. If the share price is low compared to the fair value, it might be time to buy FB stock.

Commensurately, a share price well above fair value might suggest it is time to be cautious because the stock may be overvalued.

The following valuation models were used in the graphic below to assess whether Facebook stock value is compelling:

• 5 Year DCF Growth Exit
• 5 Year DCF Revenue Exit
• 10 Year DCF Growth Exit
• 10 Year DCF Revenue Exit
• P/E Multiples
• EBITDA Multiples
• Revenue Multiples

You can see below not only the fair value estimate but also the market price and Wall Street analysts’ expectations.

Facebook Stock Price History

The Facebook stock price history reveals its history of volatility, which you should consider relative to your own risk tolerance for price swings before buying.

The long term Facebook stock price history chart is a helpful indicator to both traders and investors to assess how volatile the share price has been over time.

A good rule of thumb to gauge whether a company would be a good fit in your portfolio is to calculate the share price range from one year to the next, and ideally from peak to trough.

A Facebook stock analysis gives you insight into whether the volatility meets or exceeds your expectations and risk tolerance.

If a 25% swing in a single year would be too much to bear, then perhaps another company would be a better fit for your portfolio.

If you are keen to buy the stock but want to limit risk from potential volatility, consider hedging strategies using options.

To get a better sense of timing entries and exits, shorter term stock charts are helpful.

Casual investors often buy when stocks are moving higher and sell when share prices decline. But paradoxically even though it takes more courage to buy when stocks move lower, that is precisely when they may be “on sale” and offer better value.

As the old stock market investing quote from Warren Buffett goes:

“Be greedy when others are fearful and fearful when others are greedy”

>> Related: How To Generate Income From Stocks You Own Using Covered Calls

Facebook Revenues & Earnings

The growth of Facebook revenues is a key indicator that informs investors about the likely profitability of the company in the future. When revenue growth slows, profitability is likely to stabilize or slow too, and investors tend to apply lower multiples to these companies, which can hurt share price performance.

The implicit goal of just about every public company is to “maximize shareholder value” by growing revenues and profits.

Some companies, like Apple, have managed to grow revenues while keep high profit margins.

But more often than not, profit margins decline when companies get very large. For example, Walmart and Amazon are huge but have historically had much lower profit margins than Apple.

Facebook enjoys a business model similar to Google whereby the marginal cost is low for every additional click on an ad.

The more ad clicks, the higher the revenues – and because incremental costs are low – the higher the profits.

The Total Historical Revenues for Facebook are displayed in the graphic snapshot below:

When profits are growing rapidly, the price-to-earnings multiple is generally elevated to reflect the fast growth.

As earnings growth slows, price/earnings multiples contract. These lower earnings multiples are generally accompanied by a transition where growth investors sell and value investors buy shares in the company.

Facebook P/E Ratio

The p/e ratio for Facebook measures its current share price relative to its earnings per share.

Price/earnings ratios are a popular barometer to measure company valuations. A large company growing at a modest pace may trade at a lower price/earnings multiple than a fast-growing company winning market share in an expanding market.

On their own, P/E ratios are helpful but when you flip them upside down you get a much more intuitive ratio. For example, a price-to-earnings ratio of 50 means that the earnings yield is 2% (because 1/50 = 2%).

Another way to think about this ratio is that if you held the stock for 50 years, the company would produce profits equivalent to the principal you invest today (ignoring inflation and the time value of money).

You might think it’s definitely better to choose a low price-earnings multiple as a result, and it is true that lower multiples translate to higher profitability yields. But lower multiples are generally associated with slower growth too.

You may enjoy higher dividends by investing in a company with a lower price/earnings ratio but share price advances will generally be more muted.

Facebook Return On Invested Capital (ROIC)

Facebook’s return on invested capital gauges the profitability and value-creating potential of the company after factoring in the amount of capital invested.

Among the most prized and watched financial metrics among sophisticated investors is return on invested capital (ROIC).

ROIC measures how efficiently a company allocates capital to profitable investments.

There are lots of ways to calculate return on invested capital, including:

• Add book value of equity to book value of debt and then subtract non-operating assets
• Subtract current liabilities from current assets to get working capital and then remove cash and add to the company’s fixed assets.

ROIC is an annualized percentage figure based on the trailing twelve months. If it is greater than the company’s weighted cost of capital (WACC), the company is deemed to be creating value.

Historically, Facebook’s ROIC has been highly competitive compared to its rivals:

Facebook Debt To Total Capital

A company earning more from borrowed capital than it pays in interest may decide to issue corporate debt. Facebook has little need for debt because it can grow rapidly without relying on tangible assets the same way other companies do; for example a grocery store, an alcohol brewing company or a manufacturing company.

Many fast-growing companies are initially financed by venture capital and have no need for debt capital. After they go public, they have little need for debt because they receive shareholder capital.

But over time even big technology companies, such as Apple, have issued debt when it makes financial sense. For example, when a company can earn more on its borrowings than it pays in interest to lenders.

Companies with tangible assets are more likely to take on debt to grow. For example, Coca Cola may choose to take on debt to build a production facility or expand its distribution network, whereas Facebook has little need to take on debt.

Facebook WACC

The weighted average cost of capital, or WACC, for a company is the rate it pays to its security holders to finance the firm’s assets.

Both shareholders and bondholders expect to earn a yield from interest payments, and the WACC measures their requirements.

For example, assume a company needs $1,000 to operate and borrows $500 from lenders and accepts $500 from shareholders.

If the shareholders demand a 20% return on their money while the lenders stipulate a 10% return, then the WACC would be 15%, so the company would need to produce a 15% return to satisfy equity and debt holders.

For Facebook, the weighted average cost of capital is shown below:

Facebook Financials

Facebook financials and a 5 year DCF Revenue Exit model are shown below:

The author has no position in any stocks mentioned. Investormint does not own or recommend any stocks.

Have you bought Facebook stock? What factors did you use to make your buy and sell decisions? How did it work out for you and what lessons did you learn? Enter your comments below.

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The article Facebook Stock: Buy or Sell was originally posted on Investormint

AutoZone (ticker symbol: AZO) is the second largest retailer of aftermarket automotive parts and accessories next to Advance Auto Parts. It has over 5,000 store locations spread across the United States, Mexico, and Brazil. Since its founding in 1979 and listing on the New York Stock Exchange (NYSE) in 1991, it has grown from strength to strength, but is AutoZone stock undervalued or overvalued, a buy or a sell?

AutoZone Stock Price & Valuation

By comparing AZO stock price to its intrinsic value, or fair value, you can calculate how much potential for upside or downside movement in share price exists.

Casual investors will often look no further than AZO stock price to make a buy or sell decision on the automotive parts retailer. Beginner investors sometimes assume that a high share price means a stock is overvalued and a low share price signals it is undervalued, but more insight is needed to make those assessments.

While the company’s share price when compared with its fair value is important when determining whether it is undervalued or overvalued, the share price alone doesn’t provide insight into the company’s valuation.

Wall Street analysts will generally build a discounted cash flow (DCF) model to calculate the valuation of a company. Building an Autozone DCF model would be a valuable and educational pursuit, but it is also time-consuming. After all, a professional research analyst may spend up to a week building such a valuation model.

Below, we provide a quick snapshot of Autozone’s valuation based on the following valuation models:

• 5 Year & 10 Year DCF Growth Exit
• 5 Year & 10 Year DCF EBITDA Exit
• 5 Year & 10 Year DCF Revenue Exit
• P/E Multiples
• EBITDA Multiples
• Earnings Power Value

The estimated share price using each of these models is calculated. Price targets from Wall Street analysts and the current AZO share price are also displayed.

AutoZone Stock Price History

The Autozone stock price history reveals a volatile stock which has the potential to rise and fall substantially over comparatively short time periods.

A 10 Year Stock Price history chart for Autozone conveys valuable information on the share price range over time, so you can better gauge whether its volatility is appropriate for your financial circumstances.

It is clear that AZO stock price moves a lot in any given year let alone from one year to the next. If 20%+ swings in share price would cause you to fret or not sleep at night than perhaps a company with a less volatile share price might be a better fit, or you could consider lowering the risk using options strategies, such as the covered call.

A short-term, 1 year Autozone stock chart doesn’t provide as broad insights as long term 10 Year stock charts, but the short-term stock chart is valuable to view recent share price movements.

AutoZone Revenues & Earnings

The growth of AutoZone revenues is a key indicator that informs investors about the likely profitability of the company in the future. When revenue growth slows, profitability is likely to stabilize or slow too, and investors tend to apply lower multiples to these companies, which can hurt share price performance.

For any company, the goal is to maximize shareholder value, and the best way to achieve that aim is to boost profitability. A company that can increase revenues without its costs rising commensurately will generally experience rising profits over time. Analysts predict future earnings and apply multiples to those earnings when calculating what a company is worth.

The earnings projections for AutoZone are a key performance indicator for investors to focus on. Investors should observe whether earnings are projected to rise. The faster the pace at which they rise, the more likely  it is that the earnings multiple will be higher. And higher multiples translates to higher share prices.

AutoZone P/E Ratio

The price-earnings ratio (p/e ratio) is a valuation metric that compares the current price of a company to its per-share earnings. It is frequently labeled the price multiple or earnings multiple.

A blue chip company that has been around for decades may trade at a lower P/E multiple of say 10, suggesting that its current share price is 10x its per-share earnings.

A fast growing company with global reach potential will often be rewarded by shareholders with a high Price/Earnings multiple, or P/E ratio.

A new technology company that is not generating much in profits may have a high multiple because it has the potential to earn large profits in the future. It’s not unusual for a fast-growing, publicly traded technology company to have a P/E ratio as high as 100, meaning its share price trades at 100 times each dollar of its earnings.

A simple way to think about the P/E ratio of 100 is if you paid $100 for one share of stock, you would expect to get $1 back in earnings at the end of the year. In practice, many fast growing companies don’t issue dividends and pay you back that dollar of earnings (they reinvest it), but the concept is helpful in conveying the premium you are paying for a high earnings multiple.:

AutoZone Return On Invested Capital (ROIC)

The AutoZone ROIC figure measures the profitability and value-creating potential of the company after taking into consideration the amount of capital invested.

AZO ROIC might sound like alphabet soup, but ROIC is perhaps the most important metric any value investor should pay heed to when analyzing any company. ROIC is short for return on invested capital, and is calculated by dividing the after-tax operating income by the book value of both debt and equity capital minus cash and cash equivalents.

If that sounds like a lot of gobbledegook, think of ROIC simply as the value-creating potential the company has after taking into account the amount of initial capital invested.

Historically, AutoZone’s ROIC has been highly competitive compared to its rivals:

AutoZone Debt To Total Capital

Excessive debt can hurt a company’s financial performance or boost returns over the long-term depending on how efficiently the borrowed capital is invested. A company with some debt is often viewed favorably by stock analysts while excessive debt levels can be a cause for concern that any operational mis-step or change in market size or competitive positioning could hurt the company.

A company saddled with a heavy debt burden is no less precariously perched financially than an individual who has borrowed too much. If the costs of taking on debt exceed the benefits, a company will eventually experience falling financial metrics, and share price declines will likely soon follow.

However, a company taking on debt differs greatly from an individual assuming a debt burden because the company uses the debt to ultimately grow revenues whereas an individual typically takes on debt in order to acquire a non-revenue generating asset.

If a company can borrow at a certain interest rate and invest the cash it receives to produce a higher return than it pays in interest charges then borrowing the money may well be a smart financial maneuver.

AutoZone debt levels compared to peers have historically been lower, but higher than its primary competitor, Advance Auto Parts (AAP).

AutoZone WACC

Companies use a formula called the we the weighted average cost of capital, or WACC, to calculate the average cost of raising capital from its security holders to finance its assets.

Shareholders expect a return on their investments, banks require repayment of loans, and bondholders expect to earn a yield too from interest payments. The WACC takes account of the requirements of all these security holders.

The WACC is a very key metric used by companies to assess the overall required return for a firm. To grasp what WACC means intuitively, imagine a company that was financed equally by debt and equity holders:

Let’s imagine the company required $1,000 to operate and borrowed $500 from lenders and took $500 from shareholders.

If the lenders require a 10% return on their money and the shareholders require a 20% return on their money, then the WACC would be 15%, meaning the company would have to produce a 15% return to satisfy debt and equity holders.

For AutoZone, the weighted average cost of capital is shown below:

AutoZone Financials

Below you can see an example of AutoZone financials and a 5 year DCF Revenue Exit model:

The author has no position in any stocks mentioned. Investormint does not own or recommend any stocks.

Have you bought or sold AutoZone stock? How did it work out for you? Share your experiences in the comments below – we would love to hear from you.

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The article How Do I Buy Stock In AutoZone? was originally posted on Investormint

Alphabet is better known to most investors as Google. For virtually its entire operating history as a public company, Google held the dominant market share in search, but its name change offers insight into what else is to come from Google.

Alpha is a measure of performance on a risk-adjusted basis, so are Google co-founders Larry Page and Sergey Brin hinting that a bet on “Alpha-bet” will lead to alpha – or superior returns on a risk-adjusted basis?

To better understand the prospects for Alphabet, we analyze its financial statements and valuation metrics.

Alphabet Stock Price & Valuation

To make a buy or sell decision on Alphabet stock, the financial statements offers insights into where the share price is headed.

Quantitative research gives you insights into the operating performance and financial trajectory for Alphabet, while qualitative research informs you of the competitive landscape as well as future opportunities and markets in which the company competes.

QUANTITATIVE RESEARCH

Despite venturing into lots of business verticals, search remains the primary revenue driver for Alphabet. And the key drivers of revenues are the number of clicks and cost-per-click, or CPC, trends.

Historically CPC figures have been volatile but revenues have steadily grown over time as the # of clicks has generally increased year over year.

As more content is produced and consumed in text and video form, more ads are served and Google is the go-to resource for YouTubers, bloggers, and publishers to monetize content.

By using a combination of valuation models, a fair value for Alphabet can be calculated.

• P/E Multiples
• Earnings Power Value
• 5 Year & 10 Year DCF Revenue Exit
• 5 Year & 10 Year DCF Growth Exit
• 5 Year & 10 Year DCF EBITDA Exit
• EBITDA Multiples

QUALITATIVE RESEARCH

For a company to sustain market beating returns, it needs to have a competitive advantage that is near impossible to disrupt.

Warren Buffett describes this competitive advantage as a moat, which can take many forms, including:

• Low cost advantage
• High switching costs
• Brand recognition
• Network effects

The moat Alphabet enjoys is its network effects and better technology. Millions of websites around the world serve Google ads, making it a tall order for any competitor to disrupt Alphabet.

Even if Alphabet lost a handful of customers who decided to switch to a competitor, millions of others would need to switch before a dent would be seen in its market share.

And its extensive network drives just one component of revenue. Every query in its search box displays ads, which when clicked lead to incremental revenue.

Plus, Alphabet’s web property, YouTube is the dominant leader in video content, which enables Alphabet to monetize clicks on streaming video content too.

By establishing such dominant market share positions in utilities that consumers use daily, the hurdle for competitors is perilously high, and the future revenue and earnings growth for Alphabet is bright.

Alphabet Stock Price History

Alphabet stock price history has over long time periods sustained a long term bullish trend as its intrinsic value has risen with ever higher earnings and revenues.

In its early years, Alphabet – or Google – share price was volatile, swinging up and down by as much as 20% in just a few months.

As the company has matured and earnings have become more predictable, volatility has subsided somewhat but make no mistake about it, Alphabet share price can surprise from time to time in a big way.

The decision to buy and hold Alphabet is as much a personal one about withstanding the rollercoaster ride of share price fluctuations as it is about the fundamentals.

Examining a 10 year Alphabet stock chart, you can see the price swings over time can be large in both directions but equally the indisputable long term trend has been higher.

>> Related: Discover How To Research Stocks

Quantitative Research:
Alphabet/Google Revenues & Earnings

Even Warren Buffett had to admit the business model enjoyed by Alphabet is enviable – each additional click after covering costs leads to ever higher profits and profit margins.

Although Bing has slowly crept up on Google Search, the dominant market share by far is held by Google. The Bing Network counts over 500 million unique searches worldwide but Google still holds a 63%+ market share position.

Alphabet revenues over time reflect the enormous growth of Google’s ad network, YouTube, Gmail and other dominant areas.

Where Alphabet shines is how well it converts revenues to earnings. After its fixed costs are covered, Alphabet enjoys incremental profits from each click, the primary revenue and earnings driver.

Alphabet P/E Ratio

Alphabet has historically traded at high P/E multiples reflecting expectations for rapid earnings growth for the foreseeable future.

When companies are growing revenues fast as Alphabet has historically, price-to-earnings multiples can be lofty to reflect a share price premium and expectations for rapid earnings growth.

As a relatively mature company, Alphabet still trades at a fairly lofty P/E multiple.

>> Related: What You Need To Know Before Selling A Stock

Alphabet Return On Invested Capital (ROIC)

ROIC measures profitability and the value-creating potential of Alphabet after factoring in the amount of capital invested.

ROIC or return on invested capital assesses the return that an investment generates for shareholders and bondholders. It is one of the most closely watched financial metrics by fundamental investors managing large sums of money.

Alphabet has sustained a double-digit % ROIC which infers that it is doing an excellent job creating value.

>> Related: What Are The Best Value Stocks?

Alphabet Debt To Total Capital

Technology companies often have low debt to capital levels and Alphabet is no different. Unlike companies laden with debt who suffer in high interest rate environments from higher loan repayments, Alphabet is not anchored by a heavy debt load.

High debt levels can be a problem for companies, especially after a Fed rate hike when saddled with variable rate loans.

Alphabet has no such issues with minuscule debt to total capital percentage levels.

Alphabet WACC

Bondholders and shareholders demand a yield to satisfy them. Generally bondholders require smaller yields than shareholders, who take on more risk.

The weighted average cost of capital, or WACC, provides insight into whether the levels demanded by these stakeholders are met.

For example, if a company receives $50 million from shareholders and $50 million from bondholders to operate, with shareholders earning a 12% return and bondholders receiving a 6% yield, the WACC would be 9%.

Alphabet Financials

Below you can see an example of 5 year DCF Revenue Exit model for Alphabet:

Have you invested in Google stock historically or Alphabet stock more recently? What investing lessons have you learned? Share your investing stories with us in the comments section below. We would love to hear from you.

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The article How Do I Buy Stock In Alphabet (GOOGL)? was originally posted on Investormint

In 2006, Jack Dorsey, Evan Williams, Biz Stone, and Noah Glass, created the news and social networking site, Twitter. Since its IPO in September, 2013, Twitter (TWTR) stock has seen its fair share of highs and lows. But where is Twitter headed next? Is it an undervalued stock or an overvalued stock?

Twitter P/E Ratio

The PE Ratio for Twitter is elevated suggesting that, over the long term, the share price will normalize to reflect the lower general market’s PE ratio, or the earnings will increase to come in line more with the broader stock market’s PE ratio.

The P/E Ratio for the stock market long-term has averaged about 16x, which means the general market trades at a price of about 16 times its earnings. A simple way to think about P/E ratio is to take its reciprocal and turn it into a percentage. This translates the less intuitive P/E ratio to an intuitive annual yield. For example, if the average P/E of the market is 16x then 1/16th equates to an annual yield of 6.25%. Obviously it depends on the time frame when the comparison is made but this gives you a rough estimate.

A company trading with a P/E ratio higher than the market can continue trading with an elevated P/E ratio for an extended time period. But eventually either the earnings must grow to normalize with the general market’s P/E or the share price will fall. For Twitter, an elevated P/E ratio above market norms suggests that the earnings for Twitter must grow over time otherwise the share price is in jeopardy of declining.

The likelihood of earnings per share increasing over time is predicated on either lower expenses at Twitter Inc or higher revenues, which are preferred. If revenues are increasing, and costs don’t increase at the same pace, TWTR earnings are likely to grow over time.

Sometimes, revenue growth can be augmented when a company takes on debt capital. But the debt comes at a cost of ongoing interest and principal charges. Still, changes to the capital structure resulting from debt can boost returns.

A company with excessive debt should be approached with caution while a Debt to Total Capital ratio of zero can be a positive indicator for the company’s long term financial health.

Twitter ROIC

Return on Invested Capital, or ROIC, is a measure of the potential a company has to create value after factoring in the initial capital invested. ROIC is perhaps the most important measure that value investors focus upon when examining a company.

Another popular valuation metric used to measure the value of a company is EV/EBITDA. It is frequently used as a replacement for P/E ratio or sometimes in combination with it to determine the fair market value of a company.

Twitter Fair Value Estimate

Examining other valuation multiples for Twitter provides a summary fair value estimate. These multiples  include:

• 5 year DCF Growth Exit
• 5 year DCF EBITDA Exit
• 5 year DCF Revenue Exit
• EBITDA Multiples
• Revenue Multiples
• 10 year DCF Growth Exit
• 10 year DCF EBITDA Exit
• 10 year DCF Revenue Exit
• Earnings Power Value

The average of these models is shown in the Fair Value estimate below:

Based on these models, a fair value estimate for Twitter is displayed to show how far away the share price is from the valuation projection based on the models.

Twitter WACC

For value aficionados, the weighted average cost of capital, or WACC, selected beta, cost of equity and tax rate for Twitter are displayed in a summary card below:

The author has no position in any stocks mentioned. Investormint does not own or recommend any stocks.

Have you bought Twitter stock? Share with us your trading experiences with Twitter in the comments below. We would love to hear from you.

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The article How Do I Buy Stock In Twitter? was originally posted on Investormint

Over 100 million members in 190 countries enjoy streaming movies and TV shows on Netflix, ticker symbol: NFLX.

But the company that began as a DVD-by mail membership service had humble beginnings. In its early days it stood toe-to-toe with Blockbuster, the industry goliath, and won.

Walmart tried to knock Netflix off its pedestal, and lost. So too has Amazon competed with Netflix by offering streaming movies and TV shows as part of its Amazon Prime subscription service.

So, is the streaming video service here to stay for the long-term, will Amazon eat its lunch, and should you buy Netflix stock?

Netflix Stock Price & Valuation

Before buying shares of Netflix, research the company quantitatively and qualitatively to understand not just its financial statements but also its competitive landscape.

When you want to make a buy or sell decision on a company, it is important to gather as much quantitative and qualitative information as possible.

QUANTITATIVE RESEARCH: Netflix Stock Forecast

Quantitatively, you want to know whether the company is adding subscribers, and growing revenues. More importantly, is Netflix able to convert revenues into profits?

As a company expands globally like Netflix has, revenues are generally reinvested to grow the company and acquire more customers.

But over time, it’s crucial that customers rebill and the customer lifetime value is long, so that margins and profits increase.

Quantitatively, we can apply the valuation models below to come up with an assessment of where the share price sits relative to theoretical models:

• P/E Multiples
• EBITDA Multiples
• 5 Year & 10 Year DCF Growth Exit
• 5 Year & 10 Year DCF EBITDA Exit
• 5 Year & 10 Year DCF Revenue Exit
• Earnings Power Value

Current Netflix Stock Quote

QUALITATIVE RESEARCH

Qualitatively, you want to know if competition is a big risk to Netflix. Will Amazon fall by the wayside like Walmart did? Or will it make a push to steal customers from Netflix?

Does Netflix have a moat that could protect it from a competitor conquering it? Typical moats that successful companies have include any one or a combination of the following:

• Network effects, such as the social network effect Facebook enjoys
• Low cost advantage e.g. Amazon or Walmart low prices
• High switching costs e.g. Salesforce.com customers’ data records are hard to switch
• Intangible assets e.g. Coca Cola’s brand

Netflix enjoys a low cost advantage. Its pricing is highly competitive, and to some extent, switching costs are high because the more customers view TV shows on the Netflix website, the more history they are unwilling to leave behind by moving elsewhere. Plus, there is a familiarity aspect to a platform – when customers get used to an interface and navigation console, they often stick with it out of comfort.

Netflix Stock Price History

The Netflix stock price history reveals a volatile stock which has the potential to rise and fall substantially over comparatively short time periods.

Netflix stock price history has been a rollercoaster ride of ups and downs, causing investor heartburn.

Netflix is famous for its double digit percentage price swings after quarterly earnings announcements.

That degree of price volatility that follows Netflix stock news is something you need to pay close attention to before diving in with both feet.

Looking at a 10 year Netflix stock chart, many heart-stopping declines and breathtaking share price ascents have taken place.

Even over any one year time period, the share price has its fair share of turbulence, especially when earnings are received negatively, as well as hair-raising climbs when results are positive.

Netflix stock price history reflects the 7-for-1 Netflix stock split in July 2015.

>> MORE: Discover The Best Value Stocks

Quantitative Research:
Netflix Revenues & Earnings

The growth of Netflix revenues is a key indicator that informs investors about the likely profitability of the company in the future. When revenue growth slows, profitability is likely to stabilize or slow too, and investors tend to apply lower multiples to these companies, which can hurt share price performance.

With its enormous growth globally in almost 200 countries, Netflix has seen a dramatic rise in revenues.

Total historical revenue growth has been exponential as Netflix onboarded customers in every geography it has entered.

But more important than revenues are earnings. How well can Netflix translate high revenue figures into high earnings?

Even if it can’t do so right away because it reinvests its revenues into expansion opportunities, customer acquisition and marketing, will it do so in the future?

To glean those insights, we can peer into the future and see what the expectations are for future earnings growth.

In percentage terms, future earnings for Netflix are expected to skyrocket over the next decade.

Netflix Stock Value: P/E Ratio

The Netflix price-to-earnings ratio (p/e ratio) is a valuation metric that contrasts the current price of Netflix to its per-share earnings. It is frequently labeled the price multiple or earnings multiple.

In its quest to build revenues and take a stranglehold on the streaming movies services business, Netflix sacrificed earnings.

For most of its operating history, earnings were secondary to revenue growth and that is reflected in its P/E multiple.

Conventional fundamental analysis would suggest caution is warranted when p/e multiples are high.

But it’s not entirely unusual or unprecedented when a company has a global opportunity that its earnings are suppressed for years, even decades.

Amazon was historically the poster child for a company with very low earnings yet a share price that relentlessly climbed as it became obvious that it was establishing a dominant market position that could not easily be disrupted by rivals.

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Netflix Return On Invested Capital (ROIC)

The Netflix ROIC figure measures the profitability and value-creating potential of the company after taking into consideration the amount of capital invested.

The big question investors need to answer is how well Netflix can convert revenues into earnings and how good a job it does creating value.

Return on invested capital, or ROIC, gauges the return that an investment generates for stakeholders, both shareholders and bondholders.

To date, Netflix has a so-so ROIC, which is to be expected. But over time, it needs to keep stakeholders happy by ensuring they earn the returns they expect.

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Netflix Debt To Total Capital

When debt levels are high, interest payments can eat into profit margins. For Netflix, debt has historically been minimal.

For some companies, taking on debt is a necessary financial strategy to finance projects and growth. But excessive debt levels can suffocate a company over time, especially when a Fed rate hike affects variable loans.

Debt to total capital ratios below 10% are within the normal range and historically Netflix has had a low ratio that would suggest excessive debt is not a concern.

Netflix WACC

How much does it cost a company to raise capital from shareholders and bondholders?

Does the company generate a return that keeps shareholders happy?

Do bondholders earn a yield that satisfies them?

These are the questions that the WACC, or weighted average cost of capital, calculates.

The overall return required by stakeholders is engrained in the Netflix WACC.

Consider as an example a company needing $1,000,000 to operate which receives a loan of $500,000 from lenders and accepts $500,000 from shareholders.

If lenders demanded a 3% return and shareholders expected a 9% return, then the WACC would be 6%, meaning that is the return the company would need to produce to keep both equity and debt holders satisfied.

For Netflix, the weighted average cost of capital is shown below:

Netflix Financials

Below you can see an example of Netflix financials and a 5 year DCF Revenue Exit model:

The author has no position in any stocks mentioned. Investormint does not own or recommend any stocks.

Are you wondering how to buy Netflix stock? Are you looking for Netflix stock ratings? Tell us if we covered your questions.

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The article How Do I Buy Stock In Netflix? was originally posted on Investormint

If you want access to the real estate sector but don’t want to roll up your sleeves and manage properties yourself, Ventas [VTR] is a publicly traded real estate investment trust that has grown since inception in 1983 to have a multi-billion dollar market capitalization.

Ventas operates across the United States and Canada, and focuses mostly on healthcare facilities, such as hospitals, senior housing centers, nursing facilities, and medical office buildings.

Not only does the company finance and lease properties in the healthcare industry but it also invests in and manages properties too.

So what does the future hold for this real estate investment management company with approximately 500 employees? Let’s find out in this Ventas stock forecast article that dives into key valuation measures and much more.

Ventas Stock Forecast: P/E Ratio

When you compare share prices of one company to another, you don’t gain much insight into whether a company is overvalued or undervalued. So how do you make an accurate Ventas stock forecast?

Each company will have a different number of shares outstanding so a stock with a higher price point may have a lower market capitalization than a stock with a lower price point if the second stock has more shares outstanding.

P/E Ratio is a better metric to conduct a like-for-like comparison.

When you examine the Ventas P/E ratio, the absolute number is less important than how it fares compared to competitors, such as Welltower, Omega Healthcare, and Healthcare Realty.

A lower P/E ratio than its peers suggest that Ventas stock may be undervalued because it is generating more earnings per share for its price level than its rivals.

However, low price-earnings ratios are not sufficient to know whether Ventas stock is a buy or a sell.

It is possible that a Ventas P/E ratio is low because the share price has fallen significantly for some fundamental reason which is worth uncovering. For example, when a CEO departs, a stock often takes a tumble when shareholders have previously held the CEO in high regard.

Equally, high P/E ratios are not necessarily indicative of a stock being overvalued. It’s possible that a high Ventas price-earnings ratio is warranted because a company has significant earnings growth potential.

For the Ventas REIT, it is unusual to trade at very lofty P/E multiples that discount high growth rates, unlike technology stocks such as Facebook, Netflix, and Google, which have scalable technologies that can facilitate faster growth.

Ventas Earnings Per Share Forecast

If growing earnings is the key to increasing value over time, a key metric to observe is earnings growth over time.

We can observe the Ventas earnings per share forecast and see that, as expected, a slow and steady pace is expected in the future.

When Ventas revenues grow faster than costs, we expect its earnings per share over time to increase.

And conversely, declining earnings can be impacted by higher costs relative to revenue levels.

In this chart, we can see how historical revenues for Ventas have trended:

When revenues have grown significantly, you should pay attention to the driving forces behind the growth.

Even if revenues are fairly steady over time, you should know whether they have been driven by higher rent yields or accelerated by the company taking on more debt to boost top line figures.

Real estate companies generally manage significant debt levels so it is important to measure the Debt to Total Capital ratio.

A company with extremely high debt levels may find it difficult to pay back its borrowings on variable rate loans if a series of Fed rate hikes were to occur.

Ventas ROIC

Return on Invested Capital, or ROIC, is the percentage return that a company makes over its invested capital.

It is a commonly used ratio in finance and valuation to measure the profitability and value-creating potential of a company, and ultimately to make a Ventas stock forecast.

ROIC is among the most important financial metrics that any investor can use to assess how well a company creates value and sustains value creation over time.

You can also use Enterprise Value and Earnings Before Interest Taxes Depreciation and Amortization or EBITDA to measure valuation using the ratio EV/EBITDA.

It is commonly used as a replacement for the more conventional P/E ratio and can be used together with P/E to gauge the fair market value of a company.

Ventas Fair Value Estimate

A fair value estimate can be arrived for Ventas by examining key models, including:

• 5 year DCF EBITDA Exit
• 5 year DCF Revenue Exit
• 10 year DCF EBITDA Exit
• 10 year DCF Revenue Exit
• EBITDA Multiples
• Revenue Multiples
• Dividends: Stable Growth
• Dividends: Multi-stage
• P/E Multiples

By combining these models, we find the average Ventas fair value estimate:

For a snapshot view of whether Ventas is overvalued or undervalued, you can view how far the share price is from fair value:

Ventas Stock Price Chart
(VTR Stock Quote)

The 10-year Ventas price chart shows historically how the stock price has trended over the past decade:

More recently, we can see how the Ventas share price has trended over the past year.

Ventas Stock Forecast: WACC

If you are a valuation expert, the Ventas weighted average cost of capital, or WACC, is another key metric to pay close attention to and is displayed below for convenience.

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The article Ventas Stock Forecast was originally posted on Investormint

Iqvia Holdings [ticket symbol: IQV] is a healthcare services company listed in the S&P 500. It features biopharmaceutical development services, clinical monitoring, clinical trial support services, and strategic planning as well as patient engagement services, medical affairs services, and scientific strategy.

Iqvia was formerly called Quintiles IMS Holdings Inc. and operates in the Americas, Asia-Pacific, Africa, and Europe. Its market capitalization is so large that it dwarfs its competitors, including ICON PLC, Veeva Systems Inc., Syneos Health, PRA Health Sciences, and Medpace Holdings Inc.

IQV claims to provide transformative technology, unparalleled data, and advanced analytics. Whether customers want to design clinical trials, increase patient retention, customize R&D capabilities, or need global laboratory services, Iqvia provides solutions.

But extensive healthcare products and services don’t always translate to great share price gains, so the question for investors is should you buy IQV stock or sell it? Let’s find out more in this IQV stock forecast article.

Iqvia Products & Profile

The name Iqvia may not roll off the tongue but make no mistake about it, Iqvia Holdings (formerly Quintiles IMS Holdings) is a healthcare industry juggernaut.

In the life-sciences industry, IQV is a leading provider of data and services. The core competence of Iqvia is knowing how to bring new drugs to market.

Pharmaceutical and biotech companies can tap into the extensive network of drug-development experts IQV employs when they wish to gain regulatory approvals for new drugs.

And even after a drug launches, IQV can help pharma companies laser target customers to increase the chances of success by tapping into Iqvia’s extensive database of patient medical records.

With healthcare increasing as a % of GDP in recent decades and aging demographics supporting longer drug use, Iqvia has the potential to sustain double-digit bottom line growth for the foreseeable future.

And whether the economy booms or falls into a slump, healthcare remains a less cyclical industry that can ride out the rollercoaster of rising interest rate hikes or even a stock market crash.

That predictability in future revenues and profits has catalyzed IQV management to buy back stock, which all else being equal results in fewer shares on the market and can translate to rising share prices.

But for investors the question remains: is IQV stock undervalued or overvalued?

IQV Stock Price & Valuation

When research analysts make share price predictions, they begin by assessing growth rates of revenues, expenses, and profits, and build complex financial models involving a company’s income statement, balance sheet, and cash flow statement.

By taking the average of 7 financial models below and comparing them to the estimates from Wall Street analysts, you can see how the current IQV stock price compares to its fair value assessments.

The financial models include:

• DCF 5 Year Revenue Exit
• DCF 5 Year Terminal Exit
• DCF 10 Year Revenue Exit
• DCF 10 Year Terminal Growth Exit
• DuPont Analysis
• Historical Financials: 10 Year
• Historical Financials: 5 Year

IQV Stock Price History

Even if the fair value of a company is higher than its current share price, investors should pay heed to risk tolerance and capacity for risk.

There is no point in buying a stock that may be undervalued if you get bucked off the rodeo ride because the share price is so volatile that you can’t withstand the wild swings.

If IQV stock is still a good fit for your portfolio after viewing its long-term share price history, the next step is to evaluate a shorter time period to assess whether recent fluctuations meet or exceed your risk tolerance.

Warren Buffett may be comfortable holding his portfolio when the stock market plummets 50%, but unless you know how to apply married put options to your portfolio that kind of rollercoaster ride may be too much to handle.

If you plan to hold IQV stock for a long time period, then a sharp decline may be an opportunity to scoop up more shares “on sale” but when stocks fall it is always worth understanding why they dipped lower to make sure a major fundamental change is not taking place that could derail the share price for decades to come.

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IQV Revenues & Earnings

In order to maximize shareholder value, which is the goal of every public company, IQV needs to sustain revenue and earnings growth.

When revenues stabilize, profitability often slows too which in turn leads to investors assigning lower multiples to companies.

Conversely, when revenues are growing rapidly, and costs are not rising more rapidly, fast profit growth can result in higher multiples and a booming share price.

For Iqvia, the pace of revenue and profit growth should not be expected to match the historical returns enjoyed by technology companies that enjoy scale advantages like Google and Facebook. But as a healthcare leader, investors should expect healthy margins nonetheless.

To gain insight into past growth rates, we can view Total Historical Revenues:

Perhaps more important than historical revenue growth is the future earnings forecast for IQV.

If earnings per share are expected to increase over time, a rising share price usually follows eventually unless some earth-shattering event causes a major company shake-up.

IQV P/E Ratio

Price/earnings ratios are a useful barometer to compare company valuations. If you want to know whether a company is trading at a premium relative to its rival, P/E ratios can be insightful.

A company with a low P/E ratio may be trading at a low share price relative to its ability to generate earnings, and could be undervalued.

Equally, a rival company with a high P/E ratio may be overvalued because its price point is high compared to its earnings.

But you won’t get the full picture from P/E ratios.

It is equally possible that a low P/E ratio could reflect an expected future slowdown in earnings and so lower prices are discounting future negativity.

Similarly, you might find that a high P/E ratio is not a sign that a company is overvalued but rather it signals that investors expect earnings to increase.

The IQV P/E ratio and IQV Price/Earnings multiples of its peers are displayed below:

Once you know how IQV is trading relative to its rivals, the next step is to know whether the P/E ratio is signaling that the stock is undervalued or overvalued.

To help figure out that puzzle, we can look to IQV ROIC, which sounds like alphabet soup but is one of the most important financial metrics to assess future share price potential.

IQV Return On
Invested Capital (ROIC)

Return on invested capital measures the percentage return on investment capital that a company makes over its invested capital.

When the ROIC figure is greater than the company’s cost of capital, the company is considered to be creating value.

The IQV ROIC is among the most important metrics to calculate whether Iqvia is creating value for shareholders.

Within its industry, if IVQ has a higher ROIC than its rivals, it suggests the  company does a better job of creating value for shareholders.

IQV Debt To Total Capital

When a company is growing at a rapid pace, investors have to discern whether it is fueled by a capital injection from taking on debt or issuing more equity, or from organic revenue growth that stems from customer demand or a growing market share.

Companies that rely on tangible assets to grow like manufacturing firms generally take on more debt than companies that increase customers organically like Facebook.

Sometimes, even big name companies like Apple will issue debt despite having billions of dollars of cash on their balance sheets because they can earn higher returns from investing cash proceeds than they pay in interest charges.

IQV doesn’t have the luxury of a scalable platform like Google or Facebook but the healthcare sector does provide it some tailwinds when it comes to its Debt to Total Capital ratio.

IQV WACC

Both bondholders and shareholders expect to earn a yield from their respective investments in a company.

The weighted average cost of capital, or WACC, measures the rate the company pays to its stakeholders to finance the firm’s assets.

If a company needs $10,000 to operate and borrows half from lenders and half from shareholders but the shareholders demand a 20% return while the lenders demand a 10% return, the WACC would be 15%.

For IQV, the weighted average cost of capital is shown below:

IQV Financials

IQV financials and a 5 year DCF Growth Exit model are shown below:

Have you bought IQV stock? What factors did you use to make your buy and sell decisions? How did it work out for you and what lessons did you learn? Enter your comments below.

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The article IQV Stock Forecast was originally posted on Investormint

Boeing [ticker symbol: BA] is an aerospace and defense company that is best known for designing commercial airplanes. But it has a long history of designing, developing, and manufacturing military aircraft, satellites, and missile defense systems.

The company has five operating segments:

• Commercial Airlines
• Military Aircraft
• Network & Space Systems
• Global Services & Support
• Boeing Capital

Boeing develops, manufactures and markets commercial jet aircraft for passengers and cargo in its Commercial Airlines segment. It also provides spare parts and technical advice to customers who include both corporations and governments.

In its Military Aircraft division, Boeing designs, produces, and modifies manned and unmanned military aircraft. It researches and manufactures weapons systems, autonomous systems, and mobility and surveillance systems.

The Network & Space division focuses on strategic defense and intelligence systems, as well as space exploration products and satellite systems.

Boeing Global Services & Support provides supply chain management and engineering support, as well as training systems and even pilot and maintenance training.

And finally Boeing Capital provides financing services for equipment under operating and financing leases. These may include notes, receivables, and other assets held for sale.

But you probably already know what the company does, the big question is should you buy Boeing stock?

Boeing Stock Price & Valuation

Wall Street analysts update their buy, hold, and sell Boeing stock recommendations infrequently but as a solo investor you can make your own Boeing stock forecast by taking a look at key financial metrics.

As a company founded in 1916 with a long established history, Boeing has the good fortune of a predictable revenue stream from government contracts.

Even when a stock market crash occurs or the economy goes south, Boeing can count on top line revenues from long-term contracts to buffer it from the storms of economic woes.

But Boeing can count on a lot more to bolster its revenues. The latest Boeing stock news shows a backlog of almost 6,000 aircraft representing nearly 8 years of production.

Its commercial aircraft division should also benefit from expected increases in passenger growth. According to the International Air Transport Association (IATA), this year will show a single-digit percentage increase in passenger growth.

More passengers mean more airlines placing orders for more aircraft with Boeing.

But research on current trends can only take investors so far. When you analyze Boeing (stock symbol: BA) fundamentally, you can gather quantitative and qualitative research to make more informed buy and sell decisions.

QUANTITATIVE RESEARCH

Quantitatively, we examined the following valuation models to find a fair value assessment for Boeing.

• DCF 10 Year EBITDA Exit
• DCF 10 Year Revenue Exit
• DCF 10 Year Terminal Growth Exit
• DCF 5 Year EBITDA Exit
• DCF 5 Year Revenue Exit
• DCF 5 Year Terminal Growth Exit
• Dividend Discount Model Multi-stage

QUALITATIVE RESEARCH

Qualitatively, it is important to know as an investor why a company can sustain a competitive advantage over the long term.

Could a wealthy competitor with a lot of money eat its lunch? If a rival cannot compete with Boeing despite having more money, Boeing may have a moat that cannot be disrupted or overcome any time soon.

Even if a rival could buy the equipment, hire talented employees, and more rapidly manufacture planes, Boeing has earned the trust of the government and corporations as a preferred supplier.

Those contracts act as a high hurdle for ambitious competitors to overcome. Even existing competitors, such as Airbus, Bombardier, and to some extent Raytheon and Lockheed Martin, have their work cut out for them… and they already are well-resourced.

When you examine the company from a qualitative perspective, it is important to ignore the Boeing stock history and focus on non-quantitative information. The numbers are important but don’t let them cloud your judgment as to whether the company can sustain its competitive advantage by having a strong moat.

Boeing Stock Price History

Once you have a high level view of whether a company has a moat and a ballpark estimate for its intrinsic value or fair value, you can examine whether the company is a suitable investment candidate based on your own capacity for risk.

A highly volatile stock price may be suitable for younger investors and perhaps risk-seeking investors but it could be inappropriate for investors looking for stable dividends.

Looking at Boeing stock price today won’t be terribly helpful in making the decision. Instead, look at a Boeing stock price chart over different time frames.

A 10 year stock price chart gives you insight into the swings in price from one year to the next over a full decade.

When you look at a Boeing stock quote over a shorter time frame, you can get a better sense of the ups and downs over weekly periods.

A 1-year Boeing stock price chart is ideal to zone in on expectations for how big the moves are and whether they are suitable for your risk tolerance.

Sometimes, the price swings are exaggerated. For example, a Boeing stock buyback may reduce the number of shares outstanding and boost the share price more than would otherwise have been the case.

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Boeing Revenues & Earnings

Upon further examination, you can spot the likelihood that the price of Boeing stock will rise or fall. If revenues are increasing faster than costs, profitability is likely to increase and the share price may follow.

When revenue growth diminishes, profitability tends to follow and stabilize or slow too. As a result, investors often apply lower multiples that impact how much Boeing stock is worth.

As a rule of thumb, Republican presidents are perceived as positive for defense stocks like Boeing because they are viewed as more likely to boost defense funding, which in turn helps Boeing’s top line figures. Whether fairly or not, Democrat Presidents are viewed less favorably by defense stock investors.

Regardless of which party held power, you can see the total historical revenue growth for Boeing has generally been positive.

More important than Boeing revenues are its earnings. For investors, the question is how well can Boeing turn revenues into earnings?

Even if Boeing needs to invest in infrastructure, manufacturing equipment, and design in order to pioneer new planes and products, which results in a delay in translating top line growth to bottom line growth, investors want to know whether future Boeing earnings growth figures will be high.

Here you can view what future earnings for Boeing are projected to be over the next decade:

Boeing P/E Ratio

The Boeing price-to-earnings ratio (p/e ratio) is a valuation metric that compares the share price of Boeing to its per-share earnings.

Boeing price/earnings ratios help investors figure out how much investors are paying for $1 of earnings or profit. A company reporting basic or diluted earnings per share of $10 when the stock is selling for $300 has a p/e ratio of 30 ($300 per share divided by $10 earnings per share).

You can view Boeing earnings per share relative to its competitors below.

One way to think about P/E ratio is to invert the ratio and convert it to a yield. For example, a P/E ratio of 20x would translate to a yield of 5% (or 1 divided by 20).

All else being equal this means that after about twenty years you would get your money back that you invested in the stock.

Of course, other factors affect this calculation in reality like inflation and the purchasing power of your dollars.

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Boeing Return On Invested Capital (ROIC)

Boeing ROIC measures how well the company generates cash flow relative to the capital it has invested in its operating segments. Boeing earns excess returns which should translate to increases in value as the company grows.

One of the most important metrics to pay close attention to as a Boeing stock investor is return on invested capital.

How well does Boeing do converting revenues to earnings and creating value?

The Boeing ROIC measures the returns generated for both shareholders and bondholders.

If Boeing generates a higher ROIC than its competitors it tells you that management generally does a good job keeping stakeholders who own equity and bonds happy.

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Boeing Debt To Total Capital

High debt levels can hurt profitability when interest rates rise following a Fed rate hike.

Some companies don’t need much debt to grow. For example, Facebook acquired billions of users on its platform organically without paying for them.

If you had to pay to buy those customers to join a new company that competes with Facebook, you would probably need to borrow or invest billions of dollars.

Boeing doesn’t have the luxury of a scalable platform like Facebook does and is saddled with a debt load of billions of dollars.

While Boeing’s market capitalization and revenues are so high that its debt load is comparatively low as a ratio, margins may be hurt in higher interest rate environments if variable rate loans require higher interest rate payments.

Boeing WACC

When Boeing raises money from shareholders and bondholders, how much does it cost the company and does Boeing keep them happy?

The Boeing WACC, or weighted average cost of capital, helps to answer this question because it encompasses the required return by stakeholders.

For example, if a company needed $1,000 to operate and receives $500 from shareholders, who demanded a 9% return, and $500 from lenders, who demanded a 3% return, the WACC needed to keep both equity and debt holders satisfied is 6%.

The Boeing WACC is shown below:

Boeing Financials Summary

Should you buy Boeing stock? Boeing has a strong moat thanks to government contracts, a strong backlog of orders for commercial airlines, and a long history of strong financials.

If you are looking for yield, compare the Boeing stock dividend to its share price to determine whether the annual payout meets your criteria.

When you evaluate both quantitative and qualitative criteria, you may decide you want to invest in Boeing stock, but make sure it is valued fairly and, unlike some who continue waiting for a Boeing stock split that may never occur, consider in partnership with your financial advisor whether buying Boeing stock is suitable for you and your financial goals.

Have you invested in Boeing stock? What investing tips can you share? We would love to hear from you. If you have other questions like how much is Boeing stock? What did Boeing stock close at today? Or what is Boeing stock ticker? Simply let us know!

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The article How Do I Buy Boeing Stock? was originally posted on Investormint

Most investors think of Amazon as an online retailer with low margins and a high price-to-earnings ratio. But Amazon is so much more than an online shopping destination. These days Amazon is a goliath in not only retail but also in cloud computing, logistics, consumer technology, and media and entertainment.

Amazon AWS, its cloud business, generates scintillating margins. Its Echo device and Alexa AI assistant has been a huge hit with consumers. Approximately 1 in 2 U.S. households has a Prime membership. And some Wall Street analysts project Amazon will mushroom higher at an astonishing 16% compounded annual growth rate thru 2025.

In spite of the lofty projections, Amazon has had its fair share of flops in the past. Famously, its Fire phone fizzled out and it has lost tens of millions by investing in failed startups like Kozmo.com. But overall the company has thrived to make Jeff Bezos the richest man in the world (depending on what day you look) and continues to disrupt a wide variety of industries from book publishing to grocery stores.

So is Amazon stock worth buying or is time to sell, sell, sell?

Amazon Stock Price & Valuation

To assess the merits of buying Amazon stock, we can crunch valuation figures and analyze its corporate strategy using quantitative and qualitative research. 

QUANTITATIVE RESEARCH

Amazon is a notoriously difficult company to value because it defies conventional wisdom by keep margins razor thin, especially in its online retail segment.

These low margins result in dizzyingly high price-to-earnings ratios. Nevertheless, we can apply six valuation models to estimate the current value of the company, including:

• 5Y DCF Growth Exit
• 10Y DCF Growth Exit
• 10Y DCF Revenue Exit
• EBITDA Multiples
• Revenue Multiples
• 5Y DCF Revenue Exit

Generally, what we find is the longer term ten year forecasts lead to higher share price projections compared to shorter term 5-year estimates.

And it’s no surprise that EBITDA and revenue multiple calculations for Amazon lead to share price estimate that are approximately half of what the discounted cash flow forecast models project.

Below, you can compare Wall Street analysts’ consensus share price estimates with the estimate arrived at using theoretical valuation models.

QUALITATIVE RESEARCH

Amazon has not only succeeded in growing organically but it has acquired other businesses strategically when it finds a “dreamy business” in the words of Jeff Bezos:

“A dreamy business offering has at least four characteristics. Customers love it, it can grow to a very large size, it has strong returns on capital, and it’s durable in time – with the potential to endure for decades”
~Jeff Bezos

Some of Amazon’s largest deals include:

Amazon’s acquisitions are not limited to the U.S. It snapped up Souq, the “Amazon of the Middle East”, in 2017 for between $650M → $750M. This acquisition opens up Amazon to markets in Saudi Arabia, Egypt, and the United Arab Emirates.

More recently, acquisitions have been in a key growth business for Amazon. The margins in Amazon’s cloud computing AWS service have astonished investors, so it is no surprise to see the company continue to invest heavily there with in order to further boost its product offering:

Acquisitions will clearly play a big part in Amazon’s future growth strategy following the launch of its Alexa Fund which has a war chest of $100M and a laser focus on companies related to the internet-of-things and voice technology.

It’s notable that rival tech leader Alphabet invests much more aggressively in a wide variety of companies while Apple shies away from acquisitions unless it can own a company outright – similar to Facebook’s acquisition strategy (e.g. WhatsApp and Instagram).

Source: CBInsights

You can clearly see where Amazon expects future growth to come from when it comes to its Alexa Fund acquisitions: instructing devices to respond to your voice commands.

Some acquisitions it has made to enhance the Alexa ecosystem include:

AMAZON HEALTHCARE

Perhaps the scariest prospect for companies is the idea of Amazon entering its market.

Until Amazon purchased Whole Foods, the idea of it becoming a heavyweight in the grocery industry might have seemed far-fetched.

And until Amazon launched Prime Video, the thought of it competing with Netflix to stream entertainment content and produce original shows seemed hard to imagine.

But Amazon has a knack for shocking incumbents with bold moves, and one burgeoning opportunity is in the healthcare industry.

Amazon invested in biotech start-up GRAIL, which concentrates on genomics for cancer diagnosis.

A gene sequencer called Illumina has already spun out from GRAIL and complements Amazon’s AWS well because of the computing power needed for genomic sequencing.

AMAZON DRONES

Among Amazon’s most ambitious bets for the future is its investment in drone delivery technology.

Whether Amazon is leading investors on a wild goose chase, there is no denying the patent it applied for regarding an airborne fulfillment center:

Other adventurous bets can be seen from patent applications that span a wide gamut of areas from “virtual machines” to “unmanned vehicles”, and even to “cryptographic keys.”

It’s unclear whether Amazon plans to take payment from cryptocurrencies in the future, but what cannot be denied is that it has already purchased domain names such as:

• AmazonBitcoin.com
• AmazonEthereum.com
• AmazonCryptocurrency.com
• AmazonCryptocurrencies.com

Perhaps Amazon is simply protecting its brand name from trolls or maybe it’s a sign of greater ambitions to take cryptocurrency payments in coming years.

Amazon Stock Price History

Amazon’s share price has soared since it went public with gains of 35,000% over a couple of decades, but what is next?

Amazon stock is notoriously volatile. Because the company spreads its wings so far by attacking a diverse group of industries, it has its share of hits and misses, causing both euphoria and dismay among investors.

While Amazon’s share price has historically been choppy, Jeff Bezos has argued that his company pays close attention to what will remain constant over time as much as it focuses on new opportunities:

“I very frequently get the question: ‘What’s going to change in the next 10 years?’ And that is a very interesting question; it’s a very common one.

I almost never get the question: ‘What’s not going to change in the next 10 years?’

And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time.

… in our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery, they want vast selection.

It’s impossible to imagine a future 10 years from now where a customer comes up and says, ‘Jeff I love Amazon; I just wish the prices were a little higher,’ [or] ‘I love Amazon; I just wish you’d deliver a little more slowly.’ Impossible.” ~ Jeff Bezos

If you look over a ten year period, you will see wild swings in share price, but perhaps investors can derive some comfort knowing some things will remain constant: low prices, fast delivery, and vast product selection.

Even if you were to examine Amazon stock over any one year period, you would see a share price that has had its fair share of volatility, a representation of the struggle investors experience when attempting to accurately value a company with so many moving parts.

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Crunching The Numbers:
Amazon Revenues & Earnings

As an online retailer, Amazon was famous for delivering low earnings figures quarter after quarter but thanks to its cloud computing division, margins look better.

When Amazon started out in 1995, Jeff Bezos raised almost $1,000,000 from a handful of early investors.

Just one year later, Bezos sold a 13% stake to Kleiner Perkins Caufield & Byers for $8 million, which valued Amazon at $60 million.

And a year after that Amazon went public at a valuation of $381 million. In the next few decades, Amazon stock skyrocketed 35,000%, not least because of stunning revenue growth.

Total historical revenue growth across its entire business operations has been phenomenal over time.

When revenues grow so quickly it sometimes takes time for earnings to catch up. But as an online retailer, earnings never really have caught up to revenues, causing investors to scratch their heads as to how best to value a company growing so fast yet not turning much of a profit.

These days, Amazon AWS delivers such high margins that the company as a whole is likely to experience earnings grow at a rapid pace over the next decade – unless Bezos deploys profits back into new ventures.

Amazon Return On Invested Capital (ROIC)

When you take into account the amount of capital invested, ROIC measures the profitability and value-creating potential of Amazon.

Great companies sustain value creation over time and that is demonstrated through high returns on invested capital.

You can think of return on invested capital, or ROIC, as a gauge of whether the company is generating a return for its shareholders and bondholders.

Amazon’s ROIC is slightly lower than investors might expect given the extraordinary value creation reflected in its market capitalization. But it’s not really a surprise to see that just as Amazon confounds investors when it comes to earnings so too does it challenge investors when it comes to ROIC.

Because Amazon invests so heavily, it is no surprise to see that the returns to-date on those investments are lower than investors might wish.

Investors will just have to wait and see whether Amazon can turn its investments into higher returns on capital in the decades to come.

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Amazon Debt To Total Capital

Amazon has comparatively low debt levels but Amazon’s core business as an online retailer may suffer in terms of revenues during tough economic periods.

Unlike debt-laden companies that increasing struggle when interest rates rise following a Fed rate hike, Amazon has very little debt overall and should face no real hurdles from its financial obligations during higher interest rate environments.

However, Amazon reaches approximately 1 in every 2 U.S. households, who are on the whole heavily indebted, and so the likelihood is they will need to tighten spending during periods of economic recession, and this in turn may affect Amazon’s revenues.

Amazon WACC

Weighted average cost of capital, or WACC, is a measure of how much it costs a company to raise capital from its stakeholders.

Shareholders and bondholders demand a yield, and the combined return is captured in the Amazon WACC.

Imagine for a moment that Amazon needed to raise $1 billion from its shareholders and bondholders, 50% from each.

If lenders expected a 4% return and shareholders demanded a 10% return, the WACC would be 7%. So, Amazon would need to generate at least a 7% return to keep both debt and equity holders happy.

The Amazon WACC is shown below:

Amazon Financials

Amazon’s financials featuring a 5 year DCF Revenue Exit model is shown below:

Have you invested in Amazon stock? Share your investing tips below:

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The article How Do I Buy Stock In Amazon? was originally posted on Investormint

Uber stock may not be traded publicly yet but that doesn’t mean you can’t own a piece of the ridesharing app.

Historically, it was only possible to invest in private companies like Uber before their Initial Public Offerings (IPOs) if you were an institutional investor or a high net worth private client.

But what if you are an ordinary Joe or Jane investor wanting to own shares of the ridesharing app that has innovated in the formerly stodgy industry of ground transportation? How do you get a piece of the pie?

As it turns out, a lot of investment avenues are open to prospective Uber investors but first you should have clear reasons why you want to invest in Uber.

Why Invest In Uber Stock?

Like any company you invest in, you should have an investment thesis about why you want to exchange your hard-earned money for shares of stock. The best investors in the world have conviction in a thesis, meaning when the investment horizon sours you still have faith in your investment.

If you owned shares of Facebook, your investment thesis may be based on the network effect whereby the community of users are highly engaged with the platform and even those who want to leave are often drawn back because their friends are still on the social networking site.

Alphabet shareholders may buy into an investment thesis that Google holds a dominant market share position in the search industry which makes it nearly impossible for a competitor to dislodge them from their perch.

And Amazon stock owners might have conviction knowing that the company has acquired almost 1 in every 2 American households as Prime members and has been responsible for putting many brand name retailers out of business thanks to perceived low cost goods and services, and fast delivery times.

But why invest in Uber stock? Like Facebook, Uber enjoys a network effect advantage. It has a marketplace business that features both riders and drivers. When more drivers are on the platform and more riders hail vehicles, Uber can commoditize transportation prices in any given city.

If Uber launched in a city with nine other competitors, the other ridesharing companies would likely charge different prices and it would be difficult to build a dominant market share position and a brand name.

Beyond a simple investment thesis, you should have deeper insight into Uber financials to see how the company is growing revenues and cash, how much it is spending, and how much it is generating in profits or losses.

Uber Financials:
Income Statement

Although Uber is not required to disclose its financial records as a privately held company, the Wall Street Journal did get a hold of and report on its quarterly statements.

Gross bookings for Uber are the sum of its trips before Uber takes its cut. When gross bookings increase it means overall demand for rides as well as freight and food deliveries are on the rise. During the second and third quarters of 2017, Uber grew bookings by 11% compared to 17% in the first and second periods.

After paying its drivers, Uber keeps its share of revenues, which are called net revenues. The growth rate in net revenues during the same period last year was 21%, which is higher than the growth in bookings. The reason Uber grew net revenues faster than gross bookings is because it reduced incentive payments to drivers, which it calls net partner earnings.

During the third quarter in 2017, Uber grew quarterly revenues to $2 billion for the first time. By comparison, it took Facebook nine years to cross this threshold when it was growing quarterly revenues at a pace of 11%.

Source: Wall Street Journal

But revenue growth alone is not sufficient to make a company successful. While Uber has prioritized growth globally in order to establish a market share in cities worldwide and prevent competitors from gaining traction, it needs to earn a profit in the foreseeable future or risk further eroding its cash reserves.

As a company that commoditizes prices in its industry, Uber constantly faces price wars in the cities in which it operates. Facing battles with competitors, like Lyft and Didi Chuxing, Uber has sacrificed earnings for growth and lost a whopping $1 billion in the third quarter of 2017.

Uber Funding Rounds

Uber has issued a lot of equity to investors. From its first seed round in 2009 financed by former CEO, Travis Kalanick, and co-founder, Garrett Camp, Uber has raised billions of dollars from top tier investors, including Goldman Sachs, Morgan Stanley, SoftBank, Benchmark, First Round Capital, Fidelity Investments, Baidu, Tata Capital, and Glade Brook Capital Partners.

Source: Crunchbase

Uber Financials:
Balance Sheet

By issuing so much equity and debt to investors, Uber has raised substantial cash reserves despite burning through a lot of cash at a fast rate to finance operations, marketing and growth.

Nevertheless, it is clear from one quarter to the next, cash is shrinking. But Uber isn’t burning cash as fast as net losses might suggest at first glance.

Although net losses in the third quarter of 2017 eclipsed $1 billion, free cash flow was negative to the tune of $585 million.

Source: Wall Street Journal

Excluding the most recent investment from SoftBank, Uber would not burn through its existing cash reserves for another 4 years.

The key reason net losses and free cash flow look so different is that the latter is defined as operating cash flow minus both capital expenditures and the cost of leased vehicles.

Source: Wall Street Journal

Uber Financials:
What You Need To Know

It is easy to gloss over the many numbers on Uber’s financial statements but a few numbers stand out that are worth paying close attention to before investing.

Gross profit in the third quarter was $865 million while total operating expenses were approximately $2 billion, so Uber has a shortfall of approximately $1.1 billion to reach breakeven.

Marketing costs were $572 million and research & development costs were $314 million, so even if you stripped both of those expenses out of the income statement, there is still a leap to reach the breakeven mark.

But naysayers should be wary of getting too bearish on Uber because SoftBank invested a whopping $7 billion at the end of 2017 in exchange for approximately a 15% stake in Uber.

The vast majority of the capital is used to buy out existing shareholders while an additional $1.25 billion in new capital was added.

It is noteworthy that the valuation at which SoftBank invested was significantly lower than the valuation in the prior funding round. For optimistic investors however the discounted valuation of $48 billion might be an attractive entry level for a long-term investment opportunity.

So how can you invest in Uber stock?

Invest In Uber Stock Indirectly

One of the ways to invest in Uber stock is to purchase shares in a company that has already invested in Uber. Alphabet, Inc., better known as Google, has invested as has Microsoft, so you could buy shares in those technology companies as a proxy approach.

When Uber goes public, the shares of Uber owned by the tech giants will be added to their respective balance sheets.

This indirect approach is not necessarily going to be the best way to invest in Uber stock however because both Alphabet and Microsoft are gigantic companies and the fate of Uber won’t make or break their respective share prices.

So what other ways to invest in Uber exist?

Invest In Uber Competitors

For investors who are pessimistic about the prospect of Uber succeeding, it is possible to invest in its competitors.

Although Lyft, its primary U.S. competitor, is pre-IPO too, Medallion Financial Corp [TAXI] is a company that loans money for taxicab medallions in New York and other major metropolitan areas in the United States.

As medallion prices plummeted due to the competitive pressure from Uber, dividend yields spiked for Medallion Financial Corporation, so you could potentially gain not only from an upside in share price but also from a handsome dividend payment.

On the other hand, if you are bullish on the upside potential for Uber, you could look to short stock or buy bearish put options.

Invest In a Private Equity Fund

Private equity funds and venture capital funds regularly invest in private companies that have high potential like Uber.

To become a client of a private equity fund or VC fund, you will need to be an accredited investor, which means as an individual you earn an annual income of $200,000 or more for two consecutive years or you have a net worth of $1 million excluding your primary residence. As a couple, the income threshold rises to $300,000 annually.

If you are among the lucky few who qualify as an accredited investor, check out the companies (in the Crunchbase Funding Rounds graphic above) who have invested in Uber. The next step is to call them up and enquire whether it is possible to purchase shares in Uber if you become a client.

Invest In Uber Via
Private Company Broker/Dealers

In the past when companies like Uber mushroomed to dizzyingly high valuations, insiders were historically unable to cash out.

But these days marketplaces exist where employees who acquire stock options grants or early investors can sell to interested buyers.

Sharespost is a broker/dealer as well as a fund for private company stocks that matches buyers and sellers. The company has historically enjoyed a good reputation as an intermediary for both sellers and buyers.

Another company that enables private companies and investment funds to customize, control, and execute primary and secondary transactions is SecondMarket, now called NASDAQ Private Market after SecondMarket was acquired in 2015.

SecondMarket had been a registered broker/dealer and member of FINRA, MSRB, SIPC, and an SEC registered alternative trading system (ATS) for private company stock.

It also earned a solid reputation having been backed by top tier investors, including FirstMark Capital, The Social+Capital Partnership, Silicon Valley Bank, New Enterprise Associates (NEA), Li Ka-shing Foundation, and Temasek Holdings.

While Sharespost and NASDAQ Private Market are among the better known companies that facilitate private company trading markets, they have competition from Knight Capital Group, GFI Group, Liquidnet and Cantor Fitzgerald. So, if you run into an issue on one platform where you cannot buy shares, you can try any of the others.

What Are The Risks Of
Investing In Uber Stock?

The Queen of England famously described 1992 as “annus horribilis”, a horrible year, and the same could be said for Uber in 2017.

Betting on Uber may have seemed like a sure bet during its meteoric rise over the first years of its existence, but before committing capital to any investment, you should know the risks.

Uber has been dogged by negative press and scandals in recent years, so you should factor in the downside risk of betting on the company before parting with your hard-earned money.

In spite of the negative press, Uber financials show the company has continued to grow bookings and net revenues.

Following the resignation of former Uber CEO, Travis Kalanick, Dara Khosrowshahi took over as CEO of Uber. He was previously the CEO of Expedia, and the hopes are high among investors that he can instill a corporate culture that leaves the aforementioned scandals in the past.

So, if you want to invest in Uber stock, you should carefully weigh the risks and rewards, as well as the opportunity costs before parting with your hard-earned money.

Are you an Uber rider or driver? Would you invest in Uber stock if you could? Share your thoughts in the comments below, we would love to hear from you.

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The article How Do You Invest In Uber Stock? was originally posted on Investormint