A Comprehensive Guide to Valuing Stocks: Beyond Stock Prices

Humphrey Yang, a financial guru, emphasizes that stock prices alone are insufficient for determining a stock's value. Market cap is a more accurate measure of a company's value, as it takes into account the number of shares in circulation. Nvidia has a higher market cap than Tesla despite a lower stock price due to its larger number of shares in circulation. To assess a stock's value, one must consider various data points, including market cap, tailwinds, and potential obstacles.

Financial guru Humphrey Yang recently highlighted the importance of looking beyond stock prices to determine a company's true value. According to Yang, stock prices alone are insufficient for evaluating a stock's worth. Instead, investors should focus on various data points, including market cap, tailwinds, and potential obstacles.

Yang used Nvidia (NVDA) and Tesla (TSLA) as examples to illustrate his point. While Nvidia trades at a lower price per share than Tesla, it is actually worth more due to its larger market cap. Nvidia's market cap exceeds $4 trillion, compared to Tesla's $1 trillion market cap. This disparity is explained by the fact that Nvidia has more shares in circulation than Tesla—24.49 billion shares versus 3.210 billion shares, respectively [1].

Market cap, which is calculated by multiplying the number of shares in circulation by the trade price, provides a more accurate measure of a company's value. It helps investors gauge the percentage of ownership they have in a company. For instance, if a company is worth $100 million and you have a $1 million position, you own a 1% stake in that company [1].

However, market cap alone is not enough to assess a stock's value. Investors must also consider a company's tailwinds and potential obstacles. Nvidia, for example, is poised to benefit from the rising demand for artificial intelligence, while Tesla faces challenges if the demand for its electric vehicles wanes [1].

Additionally, comparing a stock with its peers using metrics like financial growth rates, P/E ratios, and PEG ratios can provide valuable insights. It would make sense for investors to compare Nvidia with Broadcom (AVGO) and Advanced Micro Devices (AMD), rather than comparing Nvidia to a bank stock, as they have different opportunities and growth trajectories [1].

To simplify the process, investors can also consider index funds and ETFs, which track a benchmark like the S&P 500. These funds have low expense ratios and can potentially multiply your money in the long run [1].

References:

[1] https://www.benzinga.com/personal-finance/management/25/07/46648503/stock-prices-dont-tell-the-story-heres-what-humphrey-yang-says-you-should-focus-on-instead