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In this video (video was recorded on March 5, 2020) I’m going to share one of the most valuable skills an investor should have, and that’s the ability to do value a company using napkin math.
Learning how to value companies is at the core of being a great investor.
Investing in individual stocks can be very volatile and risk, especially since the fortunes of many growth companies are dependent on what their future looks like and how things turn out several years later.
One should be ablate write down on one page why you’re investing in a company, with both quantitative and qualitative reasons.
On my one-pager, I try to answer these key questions:
1. Why product is far superior and how they will defend that superiority
2. Is company addressing a large market
3. Does company have world-class execution and innovation
4. Is there a clear and probable path to 10x valuation in 5-10 years
In today’s video I use Tesla as an example of how to do napkin math valuation.
1. Revenue: units x average sales price (ASP)
2. Gross margin
3. Gross profit (revenue x gross margin)
4. Operating expenses
5. Operating profit (gross profit - operating expenses)
Napkin math valuation requires a lot of skills mixed together, and is a sort of science and art.
Further, there’s a lot of risk when evaluating companies so it’s important to do your own homework, make your own projections and take responsibility of your own investment decisions.
The numbers shared in this video serve only as an example of how I use use napkin math for valuation projections purposes, but these numbers and projections are only personal and shouldn’t be used to make your own investment decisions.
Disclaimer: All content on this channel is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor. No guarantee is given regarding the accuracy of information on this channel. Author is long TSLA at time of original video publish date.
Tags: Tesla, TSLA, Elon Musk, Model 3, Model Y, Cybertruck, Investing
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