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The Real Price of a Stock

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June 08, 2007 – Comments (1)

I read some Graham, Fisher, Buffett and Lynch last night and found something that was pretty interesting.

I believe it was Lynch who alluded to this method of determining the real price of a stock.

If you take the stock price and add the debt per share then subtract the cash per share, you'll come up with a much more accurate share price. From this, you can then determine the new Price/Book and Price/Earnings. Using this method has turned up some pretty interesting things for me. Has anyone else tried this?

 -Ryan

1 Comments – Post Your Own

#1) On June 08, 2007 at 1:58 PM, FoolishChemist (97.01) wrote:

I believe they call that the Enterprise value (except they use the market cap, total debt and total cash).  It's always good to not ignore the debt.  I also use the Damodaran way of treating operating leases as debt.  Very important for an area like retail where they rent a bunch of the stores, but it doesn't show up on the balance sheet.  I think there is a rule of thumb if the EV/EBITDA < 10 the stock is a good deal.  It's easly found on under "Key Stats" and doesn't include leases as far as I know, but it's just a rule of thumb and further research is always needed.

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