How would I interpret an enterprise value that is below the market cap? I know what it means analytivally (the company has more cash than debt) but is that an indicator for something (overvalued, undervalued, not unusual at all)?
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Think your title is off? Maybe market is just warm and valuations are high, or this particular stock has been met with a) earnings beat optimism b) M&A rumors or c) some other form of good news or high growth expectations in place. Enterprise value built using a growth method (not multiples) should be intrinsic. Market cap is what the public sentiment equilibrium cements to at this time. The reason (if there is a rational one) is found by considering what the public market is predicting where an intrinsic valuation ignores.
LOL. What?
I'm assuming you're responding to the unedited version of OP's title / question because what you have written makes absolutely zero sense...
I will clarify since it seems like people disagree heavily.
I assumed OP meant an implied EV backed out from running a DCF, and is comparing that to the current market cap. If I misunderstood and OP simply meant the in-place enterprise value that the company has right now, then there is no special meaning obviously. It’s just what the formula works out to be.
If for some reason this all seems like crazy talk, please correct me. It would be more useful than just commenting lol what?
I edited the title if that's what you objected to.
Can you please elaborate on what you mean by** "Enterprise value built using a growth method (not multiples) should be intrinsic." **Does that mean free of biases due to market-sentiment, as a dcf is based on potential future cash-flows rather than comps?
Secondly, would in case of a dcf an enterprise value below the equity value make sense?
Means nothing, there are too many other components in the equation. Simplifying, EV + Extra Cash + Non-Core Assets = Debt + Equity + Other Sources of Financing. I would even say that for most of the companies EV > Market Cap, as typically Debt + Other Sources of Financing > Extra Cash + Non-Core Assets
EV is the ability to generate cash with your core operations. EqV is that ability plus existing cash/investments.
Yahoo had this stake in Alibaba. Yahoo made no cash (low EV), but the stake in Alibaba was worth a fortune: high EqV.
This is more of an anecdotal version of the formulas above
Sorry guys!! The title was indeed off. I corrected it to EV
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