The more evident it is that a certain company is going to become the market leader in a big market space, then the higher the valuation goes because the risk has been dramatically reduced.
Sentiment: NEGATIVE
Too many investors overvalue companies in the near term while undervaluing them in the long term.
With less competition to fear, companies are emboldened to raise their mark-ups and profits. That lifts share prices and thus the wealth of already wealthy shareholders.
An increase in shareholder value can arise for reasons other than greater efficiency, such as increased power and the resulting ability to increase profits by raising prices.
Valuation depends on several factors. From an investor angle, they look at leadership position, management, and what the company's offerings are. I think these three things got 5/5 for a company like Flipkart, and that is what is driving valuations and growth.
Whenever you look at any potential merger or acquisition, you look at the potential to create value for your shareholders.
Large companies and government agencies have a lot to protect and therefore are not willing to take big risks. A large company taking a risk can threaten its stock price. A government agency taking a risk can threaten congressional investigation.
You know, when the cost of capital goes down, when credit becomes cheap, people start taking greater and greater risks.
You have to ask what is going to happen to a lot of companies when there is not a lot more money to be gotten. That changes everybody's perspective, I think.
The reality is, risk is variable. Those in the financial world know it.
Stock prices relative to company assets are no better at signaling the likelihood of future earnings growth than they were the day the Titanic sank, and risk management is a good deal worse.