Facebook is a good example of a company with aggressive expectation pricing. Сconservative cash-flow based valuation produces a value of only $15/share. The remaining $30/share is the price investors are willing to pay for the present value of yet unobservable future cash flows. Future cash flows, though, are uncertain both in terms of size and time. As a result, investors’ perceptions of the future cash flows can swing dramatically depending on the prevailing news flow. While the Facebook might be appealing as a business, the fact that two-thirds of the current price is not quite real makes it a hard buy.
The Facebook – FB Intrinsic Value Chart:
On the chart above, an intrinsic value of the company is graphed against the stock price. Intrinsic value above the stock price usually points to undervaluation of the company shares. Intrinsic value below the stock price points to overvaluation of the company shares.