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.