Here is a chance to test your valuation skills. Remember there are two ways that are theoretically sound:
- Discounting ALL future cash flows back to their present value using an appropriate discount rate for risk (“DCF”). A DCF may be a theoretically correct method to value a company but extremely difficult in practice. A slight change in assumptions and your method becomes similar to using the Hubbell Telescope, you are looking at a different galaxy. Small changes in discount rates and/or cash flows change your valuation drastically.
- A second method is what would the business trade for in a CASH transaction between two equally informed buyer and seller. Here you have a real transaction to anchor your valuation.
Do NOT look at the price of American Dental Partners, Inc. (NASDAQ:ADPI). Go to the documents and based on the financials try to figure out what you would pay for the entire business. Support your assumptions.
I will post the answer in a few days.
Michael Mauboussin: Challenges and Opportunities in Active Management And Using BAIT #MICUS
Michael Mauboussin's notes from his presentation at the 2020 Morningstar Investment Conference, held on September 16th and 17th. Q2 2020 hedge fund letters, conferences and more Michael Mauboussin: Challenges and Opportunities in Active Management Michael Mauboussin is Head of Consilient Research at Counterpoint Global in New York. Previously, he was Director of Research BlueMountain Capital, Read More
For an overview of American Dental Partners, Inc. (NASDAQ:ADPI) go to the Value-Line here: http://www.scribd.com/doc/71933981/ADPI-Sept-2011
View the American Dental Partners, Inc. (NASDAQ:ADPI) 2010 annual report here: http://www.annualreports.com/Company/2610
If you are lost, then you can view past research reports on the company here at www.valueinvestorsclub.com. You will have to become a member but it is free. Once you login, type in American Dental Partners, Inc. (NASDAQ:ADPI) in the search box for companies and two research reports will pop up. The Value Investors’ Club (“VIC”) is highly recommended as a learning tool.
Good luck! Test your skills.