Simply put, investing is all about buying a series of cash flows. More comprehensively, the value of a stock should equate to the present value of all future cash flows to equity-holders using a discount rate that accounts for time and risk. Typically, an investor would estimate the future cash flows and work backwards to determine an appropriate price for the stock. If the stock is trading below the estimated value, the investor would buy with the expectation the price would eventually reach its fair value. Longer term investors might continue to hold a stock - even if it's trading at fair value - because they expect to receive a return on their investment.
The Dividend Collector
The Dividend Collector
The Dividend Collector
Simply put, investing is all about buying a series of cash flows. More comprehensively, the value of a stock should equate to the present value of all future cash flows to equity-holders using a discount rate that accounts for time and risk. Typically, an investor would estimate the future cash flows and work backwards to determine an appropriate price for the stock. If the stock is trading below the estimated value, the investor would buy with the expectation the price would eventually reach its fair value. Longer term investors might continue to hold a stock - even if it's trading at fair value - because they expect to receive a return on their investment.