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A123 Systems: Still Expensive Even With GM Electric Car Deal
Posted October 14, 2011
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By Mitch Vine
A123 Systems's (AONE) deal with General Motors (GM) has been clarified. Good news for the company. But how much should you pay for the stock? If you own the stock, is it time to sell?
Many investors have no top end price in mind for a stock. For them, a high stock price is just evidence that the company is doing great. They remind me of the winners in Las Vegas, who have a lucky streak and inevitably keep increasing their bets until their money is all gone. If you are one of those people, you can stop reading now.
We believe you should have a top end selling price in mind for every stock you own. There is a price where any asset is overvalued. You may have a very different formula for calculating that price. But have a price in mind. In our case we estimate future earnings, and then discount those future earnings to reflect the riskiness of the estimate. A lot of judgment goes into such an estimate, but at least it provides a rough shot at calculating the fair value of a stock. READ FULL ARTICLE HERE
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