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Folks here tonight uh we’re gonna tackle one of the hardest subjects in the stock market and very rarely ever do a video where i tell you guys you know save this video for the future because i’m telling you it’s gonna come in handy and this is one of those rare videos i put out that this is one save it in your notes on your iphone or something come back to this one
In the future because i promise it will help you because this is the type of video that is uh really really valuable because the information i’m gonna give you in this video which this is the toughest subject in the stock market to tackle and by a mile okay you know if i think about the easiest subjects to teach in the stock market that are important the easiest
Really come down to like financial statements income statements balance sheets like i could teach my seven year old how to like look at an income statement and like this is a good income statement the numbers are going up right oh look at they have more net income that’s a good thing a balance sheet oh they have more cash and investments and they do debts like
You know anybody can kind of know that right the two toughest things one’s business model and judging where business model is going over over time but the second subject that is the most difficult and the most controversial in the subject that people say that stock is overvalued that stock is not a good deal that stock is going to crash okay that stock’s going to
Needs to go down 30 50 70 we’re talking about valuation and this is the most complicated subject in the stock market by a mile because and i’m going to take you guys through individual stocks in this video i’m going to take you through tesla stock and tell you if that’s overvalued or undervalued i’m going to take you through apple stock and tell you if that’s
Overvalued undervalued netflix stock we’re going to go through paypal we’re going to talk about individual stocks and if they’re overvalued or undervalued and my views on this is somebody that’s been doing this for a really long time because what i have found over time is one person can say that stock is so undervalued you have to buy it another person’s like that
Stock’s a rip off and this is this is continuous you can get two two investors together even if they have the same mentality maybe they’re even long-term investors but two of those same type of investors can look at a stock and say no that stock price is overvalued that needs to come way down for me to consider buying another person’s like are you kidding me this
Stock is a screaming deal like what are you looking at here okay so yeah this is going to be a good one guys i promise you that and i hope you enjoy it let me know if you do in that comment section and let me know if you find content like this valuable i do appreciate any support on videos like this i know it’s not the most popular subject but this is the type of
Stuff um that is that is game changers for you in the end and if you enjoy this type of content make sure you subscribe to the channel alrighty so uh first up here let’s keep it simple we’re gonna we’re gonna keep it the simplest at first here and then we’re gonna get more and more complicated and then we’ll get into actual individual stocks and looking at them
And saying is this more undervalued overvalued okay so starting out here on the easiest end if you got a company that’s you know expected over the next five years on average to grow their revenues one to five percent on average right first off i will never consider a stock if i think they’re going to downtrend their revenue if their revenue is down trending over
The coming years i won’t even consider that stock so we’re not even going to entertain those because i just put i put any stock that has down trending revenues as like um you know usually untouchable unless maybe it’s like a turnaround play that you’re getting for like dirt cheap outside of that scenario where it’s like some dirt cheap you know like a stock that
It’s a turnaround plate outside of that and most people you know that’s that’s not even a consideration outside of that i’m almost never considering stocks that i expect to have their revenue go down over a five-year period and even those scenarios i still won’t even if it’s a turnaround play i want their revenues to trend up over time maybe one year it goes down
But over time i want it to trend up so let’s say that we’ve got a company that’s growing their revenues one to five percent uh per year right super lame growth right that’s what i would call this a super lame growth company so i’m looking it has to be under a forward pe of 20 today today under 15 is ideal if it’s under 15 let’s say it’s a three percent grower four
Percent grower all right you know something like you know a perfect example of a stock that would fit this criteria would be wba walgreens boots alliance which was a stock i stuffed a lot of money in like seven figures i stuffed in that stock when i couldn’t find many deals in the market and i wanted something that was going to give me a better return than keeping
Cash which that was a great decision because i ended up making a few hundred thousand dollars from wba versus if i just kept that money in cash uh we know what’s happened with cash it’s been devalued massively right so something like a wba would would fit this criteria of a stock that just kind of trades really really cheap yeah does it have a great growth story not
Really it’s like an okay grow grower over the next five years but it trades dirt cheap and so that that’s kind of the easiest next up here is a company that over the next five years is gonna grow their revenues about six to eleven percent on average per year okay that doesn’t mean total that means on average per year six to eleven percent uh growth so in those sorts
Of companies i’m looking for a forward p of under 25 in that sort of scenario all right under 25 and then we can talk under 20 and then we’re really looking good so if i can see a company that is uh you know let’s say i expect them to grow on average nine percent a year for the next five years and they’re at like a 22 forward p okay that’s really really attractive
You know a perfect a perfect example of a stock that i personally actually own that i think fits this criteria is actually corsair gaming of course air gaming is a company that should grow in my opinion on average about nine percentage over the next five years some years are going to grow faster than that some years will grow a little under that but i expect them
To grow at least about nine percent per year top line okay and grow the bottom line at a faster clip and that’s a stock that today trades at a forward p of maybe 20 yes or so so i look at that as a very attractive valuation there right and so that’s next one to uh understand there next level up let’s say a 12 to 19 revenue growth company then i’m looking for under
30p now you’re talking about good growth now you’re talking about good solid double-digit growth if that company can grow 12 to 19 a year per year per year for the next five years that’s that’s good growth man that’s very very impressive very few companies can do that in the public markets we got to keep that in mind you know sometimes we get tied into these super
Growth companies of like 40 growth or 50 growth but most time that’s not realistic you’ve got some companies that can grow like that and under a 34 p is what i’m looking for in these stocks if i can find it under 25 then i’m looking really really good okay so that starts out on the easiest end there let’s get more complicated and confusing now all right so what
Happens if you got companies growing 20 plus right say a 30 a company that you expect to grow 30 percent per year on average for the next five years a good example of a company like that would be palantir pltr very controversial stock in terms of valuation and how to value that company they expect to grow around 30 a year for the coming years uh that’s where it
Starts getting really really confusing we’ll tackle that subject in just a moment what about companies that aren’t profitable right now that you can’t throw a forward p because they’re actually not expected to be profitable that’s a whole other can of worms there right and we’ll tackle that one as well right but those are those are you know if i think about confu
Confusion that these these are the subjects massive growth companies that get crazy growth that’s abnormal to the market because most companies in the market are growing you know a few percent a year so also you throw a 35 growth company and for an average for the next five years it’s ridiculous right in non-profitable companies all right so let’s tackle these
All right so a company that’s growing at let’s say over a 20 clip for the next five years right so in terms of valuing these sorts of companies i like to think about three year out net income and i’m looking for three year old net income um to obviously go up substantially over the coming years i’m looking for a p e of under 30 on the three year versus where that
Company trades at now okay now there’s a lot there let me try to break that down so let’s say a company’s trading at a market capitalization of a hundred million dollars today that’s what i’m paying okay and let’s say i expect that company to get to a place over the the next three years right of they’re gonna get to a place where they’re gonna do um let’s say 10
Million dollars of net income right so i’m paying 100 million dollars for that company today i think i said 100 million right i’m paying 100 million dollar mark cap and uh i think they’re going to get to 10 million net income over the next three years well shoot that’s only a three year out p e of uh of a ten right and so that’s very very attractive for me for how
Strong this growth company is it’s very very attractive if i think about something like um when i was buying tesla back in the day right which was actually an unprofitable company when i first started buying tesla this was 2018 2019. um the first thing i thought about was i was thinking about the market cap i was paying for tesla was uh in the in the 30 to i
Think between the 30 and a 45 billion mark cap i was paying for tesla roughly which i know it’s crazy to think about now right somewhere in there let’s call 30 to 50 billion the way i was viewing that was i was very very confident that tesla was going to get to a place over the coming years where within the next five years they were going to do you know at least 10
Billion in net income but probably more than that and obviously i probably actually went low on those numbers because you know i was running those numbers for 23 24 and i mean tesla’s blow away 10 million dollars a 10 billion dollars in net income like that’s not even close so i was actually too conservative but the way i viewed it this is i’m like okay i’m paying
Let’s say 40 billion dollars for this market cap right and i got a company that within five years gonna be producing me 10 billion plus dollars in net income maybe even dare i say 20 billion dollars okay so it was like a screaming deal and that’s why i was obviously buying that stock now it came with this risk so i had to i had to i wasn’t like i could go all in
Tesla stock or something like that because i had to consider the risks at that time they were an unprofitable company that was losing a lot of money and their margins were not in a good place okay and so i had to consider all that as risk and um and but i was still willing to put the chips on the table because i was very very confident they were into those numbers
And obviously they got to those numbers okay so that’s that’s kind of the way i think about those strong growth companies and for non-profitable companies i’m really running three year out in five year out numbers right so this would have been obviously tesla kind of fits in this category of a super growth company that i expected to grow the revenues massively
But i was running three year out numbers and i was running five year out numbers and i it has to be at an evaluation that makes me say this is a joke compared to where this net income’s going over the next three five years it’s going to make this market cap look like an absolute you know joke and the stock price gonna have to rise substantially over the coming
Years to reflect this new net income essentially okay so that’s the way i think about that there okay so let’s run through some individual stocks here to do some actual examples okay netflix is it overvalued undervalued what is my opinion here well if we say what is netflix expected growth around 12 a year roughly you know at least for the next few years uh you
Know it’s hard for me to say what what netflix’s growth rate will be in four years from now but i would say we should expect around 12 a year roughly on average okay so if we’re 12 and netflix right now is at a forward p of about 30 word about a fair evaluation for netflix which this is the first time in history that i’ve been able to say netflix is a fair price
Every single time i’ve ever looked at netflix stock in the past it’s always seemed overvalued i’ll just i’ll just call it what it is overvalued okay and so this is the first time that i actually see netflix talk and i’m like you’re getting a fair deal you buy netflix stock today you’re actually getting a fair deal based upon this company’s growth rates over time
Where their net income is going to trend and you’re paying about a 34p for this type of growth company you’re you’re in a fair range for my in my opinion netflix which is once again that’s the first time i’ve ever been able to say that that’s amazing you know for the longest time netflix was a massively overvalued stock but you can’t say that today you just can’t
Okay so that covers the netflix next one up here we will get into will be apple so apple stock so apple’s a little confusing here because apple’s expected to grow about eight percent revenues this year anything in 2022 but in 2023 only five percent so when you see a downtrend like that it’s like okay and then you start thinking about you know apple in 2024 they
Gonna have that next new big product that’s going to be their next big expansion how much does services slow down over the coming years and things like that right so i look at apple today and at a forward p e of 25 and for a company we should probably expect to grow over the next five years probably expect apple to grow around roughly five to six percent per year
If you’re looking at a 25 26 4p for apple it’s slightly expensive i would not call apple stock overvalued you’re not getting ripped off if you’re buying apple stock here today but you’re it’s also not a great deal there’s other time periods in the past where apple has been a great deal and has traded at four ps of 12 13 14 15 uh for many many years and uh let me
Let me pull it up for you guys real quick here so check this out guys uh you know here uh on my trading view this is the way i set it up market cap here price to sales ratio here p is what’s important here price to book down there but p so keep an eye on this line here right so right now apple’s p e is about 28. now keep in mind the forward p is what we’re really
Talking about but i think p is just kind of relevant because this is what i can show here okay so if we go back to the past if we go back to 2017 apple is trading at 16 pe 17p once again keep an eye on those numbers there 18 uh pe 16 pe um 18 15 17 20 uh 12 and remember the forward ps are usually always cheaper for apple than the the the trailing p which this is
Showing trailing piece so all these numbers are cheaper so really if apple was trading at about 16.7 p it was actually trading at probably about a 14 or 15 forward pe okay for a reference here and so you look at apple in this time period and it was uh you know 13 p 12 p that means it was at a forward p of about 11 about 11 okay and then obviously recently the the
Ps climbed uh quite substantially so if i look at uh you know a stock like apple what i see is a company that is slightly expensive today once again it’s not a rip-off it’s not like it’s it’s uh you know you can never make money in the company but it’s it’s not the deal it once was now it’s just an expensive kind of um what people use apple as today is not really
To necessarily grow their money it’s a place to park money kind of like i viewed walgreens wba stock right last year when i couldn’t find many good deals and i was like i got like you know seven figures i need to park somewhere i was looking at wba that’s the way a lot of people look at apple nowadays where like i’d rather keep my money in apple stock than keep it
In cash because we know cash is always being devalued and so apple’s going to likely grow and you’re going to get paid that dividend money as well they got a little dividend there and so that’s kind of that so apple’s a slightly expensive stock here today okay paypal for instance this is as cheap as dirt stock okay you know they’re expected to grow about 15 in
2022 in in 2023 they expect to have a ramp up in acceleration of growth and expected to grow about 19 if not more than 19 so essentially i expect paypal over the next five years to grow somewhere in the you know fifteen to twenty percent range we’ll call it fifteen percent on average for the next five years all right right now the stock’s at a ford p of of 20 of
2021 okay this is cheap as dirt when you talk about this type of company that this has this type of revenue opportunity and it’s trading at a 21 forward p e it’s cheap as dirt and that’s why i call paypal that’s why i call paypal easy money it’s an easy it’s like curry from an open three man this is easy money okay and so that’s paypal now uh next one up here this
Is complicated tesla so what makes tesla such a controversial stock and such a tough one to value well i mean so first off tesla because you ran recently it’s approaching right around trillion dollar mark kept so this market cap don’t pay attention that’s about one trillion and the forward p on on tesla right now is around a 90 roughly somewhere around a 90. okay
Here’s where tesla gets very confusing why it’s such a controversial stock and some people say this is massively overvalued now people are like no it’s actually a great deal you should be buying tesla stock here today so the company 54 growth uh is is the growth rate that’s expected in 22. over 50 revenue growth is insane okay but then 23 analysts only have them
At 25 right and so it’s like wait a minute okay that’s a huge difference that’s a huge difference 54 to 25 and when you talk about that type of drop-off then are you talking about 15 revenue growth in 24 what does that look like never mind this we know uh tesla is obviously a business model in which it is is cyclical right um you know if we had some sort of major
Recession i’m talking about a major recession right uh the car business is not gonna be good including tesla like everybody would get hit in that scenario the amount of people buying cars would just go down substantially for or short term and then it would climb back up right so this is a stock that is very confusing and even myself somebody that owns a stock and
Is and you know was a was a huge buyer of this stock many years ago i look at tesla stock here today and i can only hold this talk because i can’t say um with tesla at a forward p of 90 in the confusion and kind of growth rates here i can’t say it’s necessarily a deal i also can’t say tesla’s a rip-off i i kind of put tesla in kind of like a no-man’s land right
Now and sometimes i get the question it’s very tough question to answer is like you know if you didn’t own tesla stock would you buy it today and i’m like i don’t know if i could make that move because when i was buying the stock it was a 30 to 40 billion market cap you know i’m looking at this company i’m like they’re getting to this this net income easily over
The coming years now i look at tesla and i’m like shoot man you know they gotta they got to get to 50 75 billion dollars in net income right to justify the current valuation and um i think they can probably get there but it’s not going to be necessarily easy and so that’s where the confusion really comes into is tesla and over value stock are actually in under
Values talk or is it actually a little more in between so that’s why me i’m just i’m just holding the shares i have in this one and uh and not buying more even though i love the company it’s it’s a very tough one to value now because the valuation has gone so steep so i hope you guys enjoyed this video i hope you got a lot of value out of it this is a one i was
Looking to put together for a little bit here and yeah let me know if you guys like a video like this i can do more of these sorts of videos in the future uh i hope you guys appreciate it i appreciate you joining me and uh have a great day don’t forget to give my free course pin comment
Transcribed from video
HOW TO VALUE A STOCK | NEXT 3X EASY STOCK By Financial Education
