Is there a Gap? Will it close?

Alas when it comes to the market, timing is everything.

What we try and discern is whether the difference between Intrinsic value and Price exists, if not, what seems to be higher, and what the future might bring.  Traditional tools for intrinsic analysis includes DCF, multiples, CAPM, Gordon Growth, Excess Return Models and the like.  What it ultimately brings is one/group of analysts perspective on risk, reward, and their idea of what investors are likely to buy into the company.  If you think that makes sense, take a look at $YELP or $GRPN and try to make sense of what people are paying for equity considering the financial performance of the Company.

Tools for pricing include multiples and comparables, charting and yes! technical indicators.   Your fundamental research can indicate what the stock should be trading at but what that fails to include is the raw emotion that traders and investors have in the market.  Takeaway: Just coz a stock should be trading at a certain price doesn’t mean that’s what the market is offering that to normal investors (Remember when $TWTR’s IPO was set by the analysts at $18-24 and when it finally got to the public it was around $40.)

The chart below has really helped me grasp an understanding between the differences of price and value.


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