A primer in valuation - Musings on the market
TLDR: Blog recommendation Aswath Damodaran - Professor of Finance at Stern school of business
Professor Damodaran is this very good blog where he posts about valuation of companies in the news. His details analysis is excellent and to the point. He has some valuation of various companies from ARAMCO, to FACEBOOK, to UBER.
Even if you are not interested in investing in any of these firms, it is a good primer on how you go about valuing a company. It is a must have in your tool kit for any fundamental investor.
His recent review of ARAMCO conclusion is as below.
Aramco: To invest or not to?
Over the weekend, we got a little more clarity on the IPO details, with a rumored pricing of $1.7 trillion for the company's equity and a planned offering of 1.5% of the outstanding shares. That price is within shouting distance of my valuation, and my guess is that given the small size of the offering (at least on a percentage basis), it will attract enough investors to be fully subscribed. At this pricing, I think that the company will be more attractive to domestic than international investors, with Saudi investors, in particular, induced to invest by the company's standing in the country. It will be a solid investment, as long as investors recognize what they are getting is more bond than stock, with dividends representing the primary return and limited price appreciation. They will have no say in how the company is run, and if they don't like the way it is run, they will have to vote with their feet. If they are worried about risk, the research they should do is more political than economic, with the primary concerns about regime stability. The one concern that you should have, if you are a Saudi investor, with your human capital and real estate already tied to Saudi Arabia's (and oil's) well being, investing your wealth in Aramco will be doubling down on that dependence.
In case you care about my investment judgment, Aramco is not a stock for me for two reasons. First, I am lucky enough not to be dependent on cash flows from my investment portfolio to meet personal liquidity needs, and have no desire to receive large dividends, just for the sake of reaching them, since they just create concurrent tax burdens. Second, if I were tempted to invest in the company as a play on oil prices, the rising royalty rates, as oil prices go up, imply that my upside will be limited at Aramco. Finally, it is worth noting that this company will be the ultimate politically incorrect investment, operating both as a long term bet on oil, in a world where people are as dependent as ever on fossil fuels, but seem to be repelled by those who produce it, and as a bet on Saudi royalty, an unpopular institution in many circles. As a consequence, I am willing to bet that not too many college endowments in the United States will be investing in Aramco, and even conventional fund managers may avoid the stock, just to minimize backlash. I don't much care for political correctness nor for investors who seem to believe that the primary purpose of investing is virtue signaling, and I must confess that I am tempted to buy Aramco just to see their heads explode. However, that would be both petty and self-defeating, and I will stay an observer on Aramco, rather than an investor.
Add his blog to your RSS reader for solid gems. Blog link here -> http://aswathdamodaran.blogspot.com
