Price charts don’t tell the whole story

Towards the end of calendar year 2007, the stock price of Australian rail & port operator, Asciano (AIO) was trading at $18 per share giving it a market cap of A$4.9 billion and it’s Enterprise Value (market cap plus debt and minus its cash) was A$8.97 billion. They were also near reporting a financial year EBITDA of A$626 million.

Six months earlier, the company had listed on the Australian Stock Exchange and was trading around $25 per share.

Today, the stock price is $5.80 and its market capitalisation is A$5.65 billion and the Enterprise Value is A$8.75 billion. Both figures are near or higher than the values seen at the end of 2007.

Incidentally, its 2013 Financial Year EBITDA was $911 million.

After seeing its stock price fall by more than 70%, how can this company’s worth be higher than its 2007 level?

Asciano now has a float of 975 million shares.

So, we take the 975 million shares and multiply it by $5.80 per share to equal $5.65 billion of Market Capitalisation.

Back in 2007, AIO has 273 million shares on issue which when multiplied by its $18 share price gave it a market cap of A$4.9 billion.

The difference being, Asciano has quadrupled the amount of shares on issue over the past 5 years.

This highlights one example of where you need to do your homework when understanding a company’s value rather than simply looking at a price chart.

Additionally, it’s a reminder to buy an asset that has scarce supply rather one than is plentiful.

3 Responses to Price charts don’t tell the whole story

  1. Ben Jennings says:

    Interesting summary rob

    Sent from my iPhone

    • There’s a real misnomer amongst investors that if the stock price was once $10 and now it’s $2, then it must be automatically cheaper. Since we’ve had a few years of major share issuance and corporate re-capitalisations, this needs closer attention when making investment decisions along with accounting for “reverse” stock splits.

      Such an example is U.S. listed Citigroup. It had a 1 for 10 reverse split in May 2011, thus beefing up its stock price 10 fold from $3.50 to $35.

      Now the stock is trading at $51 with a market cap of $155 billion and its ‘split-adjusted” high in 2006 is $570 which gave it a market cap of $240 billion.

  2. Arik Star says:

    Great commentary. Spot on Rob

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