2024-02-19 08:00:34 ET
Summary
- Financial advisors dismiss value investors in favor of metrics like growth and relative price to earnings.
- Valuation experts are shifting to using a modified Black Scholes analysis to value commodity-based companies.
- Black-Scholes approach values reserves based on the theory that if profitable development is possible, reserve value can be assessed with reasonable accuracy.
- Valuation of Baytex reserves provides evidence Baytex shares are undervalued in the market.
Value investors seem to have been dismissed out of hand by financial advisors with most recommendations that I read based on momentum, growth, relative price to earnings, sales, EBITDA or some other convenient metric and few delving into the business or its fundamental economics. This is particularly so for commodity-based companies where, to be fair, forecasts of commodity prices are prolific and typically wrong. Analysts regress to old DCF valuation methods necessitating a price forecast, despite the reality that forecasts of basic commodity prices like oil, gas and base metals are worthless since the commodities are subject to a global auction driven by a plethora of competing forces. What is an investor to do?...
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Baytex Energy Is Worth Some Thought