Viajero
Volunteer Moderator
Just because you believe the company value is negative doesn't mean it is. I'm using a valid method to determine share price, which is a significant investment of $46 million in 2018 for 10% of the shares. Also their revenue is significant and historically quite stable - commercially the basis for a solid share price.
If you believe no profit and small loans are a significant factor in company valuation, you might want to take a look at a recent case study like Uber. Prior to their May 2019 IPO, they disclosed that they may never "achieve profit". Quoting from prior to the IPO, "last private market value of $76 billion". Based on that private valuation they set the IPO price at a valuation of $74 billion, raised $8 billion during the IPO, the share price immediately dropped 8% on close of day 1, and has clawed its way back to what was the private valuation since then.
Perhaps the private investors' 10% buyout of CIG last year was a smart move, comparatively?
True. There are usually some outlier cases where the market has placed a premium on money losing businesses. You can find plenty of those during the dot com bubble period and more recently in the biotech start up arena (Theranos anyone?). Some of the main reasons that happens is because investors in those cases had a hunch or otherwise usually unsubstantiated hope (some would even say faith) that the business would turn around at some point. Also many of these had a “promise” of being disruptive for their respective markets. Mythical unicorns. Uber, with its amazing year on year revenue growth and user base growth does indeed fit in this unicorn profile.
The majority of those ended up destroying most of the value (if not all and then some) of the investments done. And the case of Uber is probably not going to be an exception (unless miracle or somehow manage to get their costs under control below their revenues).
All those cases notwithstanding the fundamental principle still holds that the most solid company valuations are primarily based on the track record of their profitability (or lack thereof) that can be relied upon for projections going forward.
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