Market Value Has Appeared, and a Sharp Rebound Could Come at Any Time

【Market Value Has Appeared, and a Sharp Rebound Could Come at Any Time】

CLEC Club / Written date: Dec. 26, 2018

After the market goes through extreme panic, it usually has a fast, sharp, and powerful rebound.

As the saying goes:

【A violent wind does not last all morning; a sudden rain does not last all day.】

【Misfortune is where fortune depends; fortune is where misfortune hides.】

The market was not expensive to begin with. After this decline and correction, the market has become quite cheap.

At the end of the article, we use financial analysis to explain to everyone that the current stock market is quite cheap.

A company's value is not determined by market price volatility. A company's value is determined by its business model, many satisfied customers, and innovative products.

To become a value investor, you must focus on a company's value and completely ignore market volatility. For an archer, the important thing is the bullseye; the outside scenery should not be visible.

When the market falls to such a cheap level, it can rebound at any time. When stock prices are high, shareholders face risk. When stock prices are cheap and low, investors holding no positions also face considerable risk.

Investors should hold steadily and face the market with optimism.

【A company's value: a good business model plus growth and financial value】

We have talked a lot about business models and growth before. Today we will use only the financial side to prove that the current market is quite cheap.

• PE, or price divided by earnings, is the first measure of whether a stock price is cheap. Below 20 is reasonable, below 15 is cheap, and below 10 is very cheap. But you must never invest only because PE is cheap; you may buy a landmine stock.

• AAPL PE = $146.83 / $11.91 = 12.32

• NVDA PE = $127.08 / $7.48 = 16.98

• ROE, return on equity, is company profit divided by shareholders' equity. It considers the company's ability to make money so far. ROE above 20 indicates a very good company.

• AAPL ROE = 49.36, meaning $100 in assets earns $49.36.

• NVDA ROE = 59.32, meaning $100 in assets earns $59.32.

• PEG considers a company's growth. Equal to 1 is a reasonable price. Greater than 1 is expensive. Less than 1 is cheap.

• AAPL PEG = price $151 / EPS $11.91 / growth 31.8, removing the percent sign, = 0.3986

• NVDA PEG = price $129 / EPS $7.48 / growth 46.8, removing the percent sign, = 0.3685

Even if the companies' growth rates were cut in half, current stock prices would still be very cheap.