Liquidation value per share - Is it important?

[Nero64]

Say I have a stock which has

Assets: 20 000 000
Liabilities: 5 000 000

So if the company folded it would have 15 000 000

Now say the company has 50 000 000 shares outstanding

That would be a value of 30c per share.

Say the share is trading at 70c

You would say that the share at current price is overvalued and not a good buy.

Is this how the fund managers do their fundamental analysis when considering to buy shares.

Is this really important in a market which is based on sentiment and raw emotion?

thanks

 

[prawn_86]

That would be the first of many steps when fundamentally valuing a share.

It may or may no be overvalued. It depends on cashflow, growth prospects, management etc etc

Over the longer term, in theory, the emotion is supposed to balance out, but shares will almost always be above or below "fair value" as everyone has a different opinion, and risks, and required returns.

 

[wonderrman]

The stock market is forward looking mechanism. Yes the liquidation value would probably have some impact, but one would think the future outlook of the company would give the stock price a better base, from a fundamental point of view.