Now You See Why The Cost of Equity Capital is So Important
As we have been pointing out for the better part of a year, despite low valuation multiples, which have fooled plenty of well-known investment strategists, we have been consistently pointing out risk is elevated.
The cost of equity capital is the discount rate used to value a firm’s free cash flows and represents half the puzzle.
And we have the most comprehensive model that exists!
Today, a large brokerage firm issued a buy recommendation on a stock, pointing out its cost of capital. But all they did was evaluate the cost of debt capital-not equity capital-no surprise then, its stock, with its high cost of equity capital, fell greater than the market, which itself crumbled.
Without an accurate and meticulous cost of equity model, fair value cannot be established. And our model evaluates at least 60 fundamental factors in great and important detail to arrive at the appropriate discount rate. It is not, as all other analysts use, a cost of equity based on a stock’s volatility (its beta), or an implied rate, based on its stock price.
For information on how to improve your investment performance, drop me a line.
Ken
