What the Market Pays For
What do markets pay for when they value companies? The common refrain of frustrated managements is that markets are too short-term oriented and miss the long-term potential. But a deep dive into how the market responds to earnings shows the divide is less about time frame than visibility – investors are paying for predictable and persistent revenue.
In this paper from the Global Markets Institute, the authors examine the mechanisms by which the market assesses discipline, persistence and predictability. It also shows how understanding the drivers of valuation can explain the “deep pocket risk” that prevents established companies from getting the same degree of credit that small companies, particularly start-ups, often get for ambitious projects.