Shares outstanding vs. price

[darkhorse70]

Currently trying to create some sort of trading strategy. One of my criteria in filtering stock is share price. It got me wondering, if a companies shares outstanding is half that of another but its price is worth twice as much are they equal. For example tesla is around $250 per share but has 120M shares outstanding. Much less relative to some other stocks.

My question is, the stock is expensive but not so much if you think of facebook or twitter who have 2x or 4x more shares. Any thoughts?

I was thinking of shorting over proced stocks. Price wise tesla is much more expensive but you own more of the company. So does shares outstanding play a big role in the probability of a move relative to pricing?

 

[McLovin]

And you want to start your own hedge fund?

 

[darkhorse70]

Haha maybe one day.

 

[McLovin]

Is a $100m company with 100 shares more or less valuable than a $100m company with 1000 shares? That should answer your question.

 

[burglar]

Is a $100m company with 100 shares more or less valuable than a $100m company with 1000 shares? That should answer your question.

The mathematics would say the companies are the same, value wise ... but not price wise!

But it is not about mathematics, is it?

 

[darkhorse70]

Thats what I was thinkink to burglar. Atleast phycologicaly wise atleast 300$ for one share seems more intimidating than 20$. I guess the real question is how much of an impact does outstanding shares have on price.

It was just a thought, one that I hadnt thought of factoring in before.

 

[burglar]

Thats what I was thinkink to burglar. Atleast phycologicaly wise atleast 300$ for one share seems more intimidating than 20$. I guess the real question is how much of an impact does outstanding shares have on price.

It was just a thought, one that I hadnt thought of factoring in before.

Be very, very careful or you will end up a "Value Investor" instead of a trader!

If ever I buy Tesla shares, I will buy a $3,000 lot.
When I buy penny dreads, I buy a $3,000 lot.

I don't even care to do a valuation.
First I'll get asked why I use FCF instead of DCFA.
Then I'll get asked if it isn't more prudent to use EBITDA.

What about NPV & IRR, PEG and EPS?
What estimate do I use for intangibles?

How much safety margin do I allow?
Does the company have a "MOAT"?

 

[darkhorse70]

Its times like this you wish you had a teacher. I guess ill have to brush that question off to the side. Maybe the answer will float to me when the times right loll.

 

[darkhorse70]

That makes sense burglar. I guess each is relative to itself and cant be compared to a different stock. Over extended is only based on its previous history not about what its evaluation is compared to another. Well thats my opinion now.

 

[burglar]

Its times like this you wish you had a teacher. I guess ill have to brush that question off to the side. Maybe the answer will float to me when the times right loll.

You are on a forum.
You have hundreds of teachers, well maybe that is an exaggeration!

 

[McLovin]

The mathematics would say the companies are the same, value wise ... but not price wise!

But it is not about mathematics, is it?

I thought it was. If not, what is it about?

 

[burglar]

I thought it was. If not, what is it about?

D&M (deep and meaningful)

Is a $100m company with 100 shares more or less valuable than a $100m company with 1000 shares? That should answer your question.

Let's call them KLM and NOP

KLM shares are valued at $1Mill each.
NOP shares are valued at $0.1Mill each.

But after a few days trading KLM shares can have risen or fallen by x%

NOP shares can have risen or fallen by y%

Short term, price is decided by auction.
Long term, price oscillates towards true value!

The general principle I was trying to convey is that the price of a share is a pretty arbitrary value.

 

[McLovin]

D&M (deep and meaningful)



Let's call them KLM and NOP

KLM shares are valued at $1Mill each.
NOP shares are valued at $0.1Mill each.

But after a few days trading KLM shares can have risen or fallen by x%

NOP shares can have risen or fallen by y%

Short term, price is decided by auction.
Long term, price oscillates towards true value!

Well yes. But if they have moved by x% and y% they're no longer $100m companies. The general principle I was trying to convey is that the price of a share is a pretty arbitrary value.

I think you might be reading too much into my first answer, burgs.

 

[burglar]

Well yes. But if they have moved by x% and y% they're no longer $100m companies.

I think you might be reading too much into my first answer, burgs.

I don't mean to be disagreeable.

Well in fact, I do.

Agree the Market Capitalisation has altered, BUT how prey tell, did the IV alter?

 

[McLovin]

I don't mean to be disagreeable.

Well in fact, I do.

Agree the Market Capitalisation has altered, BUT how prey tell, did the IV alter?

I didn't mention IV. I was only talking about market cap.

 

[burglar]

I didn't mention IV. I was only talking about market cap.

In that case, we are both agreeing!

 

[pixel]

What you guys call enterprise value, every stock report lists as Market Cap. That's short for Market Capitalisation and is calculated (that bluddy Maths again!) by multiplying the current share price times number of shares on issue.

That aside, the size of a share's price level - penny, a Dollar or two, 30 bucks or more - has then only psychological meaning. Take Fortescue, FMG.ASX, as an example: Many years ago, when Twiggy Forrest first got that twinkle in his eye, FMG traded at about 4c; only few "serious investors" took note of the penny-dreadful. But some workers and their mates stuck a bit of spare cash in there, buying maybe 100,000 at 4c, which cost $4,000.
When it all got going and the Chinese bought the first shipments, the share price rocketed up towards $100 a pop. By that time, only the very big institutions would buy; few traders and Mum&Dad investors would be interested to buy 40 shares at $100 each. Seems paltry, doesn't it?

So, Twiggy decided on a share split: For each old share, he'd issue ten new ones; the Market did the right thing, mathematically, and revalued each of the new shares at exactly one tenth of the old ones. And Hey Pesto! Mum bought 400 shares at $10 each and "knew" each share was worth ten bucks.
(Sadly, they didn't stay at that level. Iron ore miners aren't as much in vogue these days. Just ask any AGO, Atlas Iron, holder...)

 

[burglar]

Just to clarify:
The graphic in earlier post, the Forum Buffoon, is me!

 

[skc]

Thats what I was thinkink to burglar. Atleast phycologicaly wise atleast 300$ for one share seems more intimidating than 20$.

Intimidating to who? People with no money? Or institutions who move stocks?

Berkshire Hathaway is over $200,000 per share. If you shorted it on the notion that $300 was intimidating...

 

[darkhorse70]

Skc but isnt the likelihood of a stock worth $4 doubling more likely rather than a $300 dollar stock doubling. On that notion I thought the reverse is also true for a short position?