 Okay, hello ex-traders and today we are going to change it up a bit and instead of looking into options, option Greeks, selling calls, buying spreads, etc., we're going to take a look at company fundamentals. Remember that when we talk about options, I always, according to the trading strategy, which I will link to here in the video, when we look at options and specifically at a chart of the ticker that we're looking to get into, we look at technicals, fundamentals and support and resistance levels. So the longer out you go with these swings and leaps, the more relevant the fundamentals of a company become and the more irrelevant the market jitters or tantrums between data points and FOMO and FUDs and things like that, the more irrelevant those become. So let's go ahead and jump into company fundamentals. What I look for and basically what I'm trying to do when I'm looking at fundamentals, also I believe this is the perfect time to cover this topic because the stock market is about to or could be pivoting between bear and bull market, but it's not going to be a bull market like the 2020-2021 where these high growth tech companies became superstars. It's going to be a more modest bull market where certain companies that actually provide more solid and more conservative and more long-term sustainable value are the ones that are going to come out on top. So it's not going to be 50%, 60%, 100% growth like in the after the pandemic boom recovery, it's going to be a different probably more conservative kind of bull market. And it is a good, actually a perfect time to jump in and get a lot of value companies at good prices because they have basically deflated along with the big growth stocks. If you look at the NASDAQ, the NASDAQ has done and is still doing pretty terrible. But that has deflated, that's because a lot of those high tech growth companies got deflated on in 2022, but it brought along with them for the ride a lot of high value, more blue chip companies. So it's a perfect time to jump in and this is where fundamentals play a big role. So value, well, why is a company valuable? You know, and actually left this open on purpose because there's a lot of different definitions of value. So why is a company valuable? So a lot of the ways that analysts analyze companies for value, we have a couple of examples here. One of them is based on how much cash the company can produce. And this is known as discounted cash flow. And basically what it means is how much cash flow does the company have over the next few years? And it doesn't go out to infinity, although it can, but basically the farther out you go in time, the less reliable the numbers are, just like a weather forecast. So they get a lot less weight assigned, but the cash flows in the next maybe 5, 10 years, those are the most important ones. So those are the cash flows that analysts try to identify. So basically you take the cash that is produced in the future, in future years. And you add them all up. But the thing is that the cash produced in today, in this year, 2023, is a lot different than the one produced in 2033, 10 years from now. Because 10 years from now, as you all know, the time value of money, and if you haven't ever covered or seen this topic, then I will try to find a link to a topic here. But basically $1 today is a lot more valuable than $1 tomorrow. And that's related to the fact that, well, you can actually prove this to yourself if you go back in time. And when your parents were kids, Coca-Cola probably cost them about $0.25. You can't get a Coca-Cola for $0.25 nowadays. And whatever rates the different analysts use to discount those cash flows is what makes the difference between what Jeffries says, what Goldman Sachs says, what Bank of America, what Deutsche Bank, and all these different analysts say or think that a company is valued at. Because they project their revenue, they project their growth, they project their earnings, and then they discount all those cash flows back down to today and say, this is what they're worth. But basically every analyst has a different opinion, not only on projections for growth and revenue and earnings, but also on what discount rates to use to discount those future cash flows. So that's one way. And it's one of the most common ways, the discounted cash flow. Another one is the enterprise value. And that's basically how much cash it has right now. How is it valued? The enterprise value. So what you do is you take the balance sheet and you look at the balance sheet and then you basically figure out how much a company has. So all assets are obviously valuable. And then however much debt, which is on the viability side of the balance sheet, and I'll link to a video on that topic here. But basically however much debt you have is something that is owed to somebody else. It doesn't really belong to the company, belongs to whoever gave you the money. So basically whatever you have, so the cash that you have minus the debt that you owe, then that's basically how much real cash you have today. And then there are others. There are other ways of valuing companies that are much shorter, much quicker, such as taking the earnings per share and the price to earnings. There's also sales to earnings in the case of some companies that don't produce profits such as EPS or have negative EPS. You have to figure out a different way to value them. So let's look at some of these company parameters that we can look at. And let's compare two of the giants, right? So Apple and Tesla, they're both high tech growth companies. They should both have a lot of similarities, but they also have a lot of difference. Here we're looking at Apple and Tesla and you can get these data points from, I believe I got them from Yahoo Finance, but they're on basically every finance site available, sales and revenue. So let's compare the two. Apple, we're talking $394 billion whereas Tesla is $74 billion. So that's about what, five times bigger revenue money coming in. And this TTM means trailing 12 months. That's important to keep in mind because a lot of these parameters are sometimes reported as TTM, which is trailing 12 months, which means that Apple made $394 billion in sales or revenue during the past 12 months, which is trailing. And it's comparable to Tesla, but sometimes it's not trailing 12 months. Sometimes it's forward 12 months, so it's something that's being projected. All right, so we can get a better idea for the difference in size of revenue. EPS, so earnings per share. After the revenue you need to take out obviously all the costs and you're left with earnings and then you divide it by the number of shares outstanding. And in this case, again, you have $6 for Apple and $3 for Tesla. So that's actually a very good indicator because we're talking about a much older company here in Apple and they're only at $6 per share in earning. Whereas Tesla is even with one fifth the amount of sales revenue is producing $3 in earnings per share. So that could probably be due to the fact that the margin on whatever Tesla sells is a lot bigger than the profit margin in everything that Apple sells. And that also makes sense because as you grow more revenue streams, you diversify and there's basically a trade off between revenue streams that are riskier but produce a lot more margin versus those that are more conservative, but they produce a lot less margin. So your margin might eventually actually drop as you get bigger in the case of the long-term long-standing blue chip companies. Whereas in the beginning, you might actually have a bigger profit margin because you're a lot more risky. So you're able to reach $3 in earnings per share quicker, Tesla being however many years old, I don't know, seven, 10 years old. I can't remember how old the company is whereas Apple is older than I am. So that's actually quite impressive on the side of Tesla. Then obviously, this is a big difference. A older company with a more solid, conservative and stable revenue stream will be able to produce or pay a dividend whereas Tesla or a high growth company that has to burn through a lot of cash and invest in research and development and production and facilities. And they might be collecting a lot of money like in the case of Tesla for sure, but that doesn't mean that they get to keep a lot of it. They actually reinvest it right back into the business. So there's no money left over for shareholders. This is obviously something to look for in value companies because their stock might not go up and down as much, but a dividend could be a nice way to offset maybe a company that only grows five, 10% a year in value but gives you an extra income such as dividend. So then you will also find in the financial statements the cash flow which in the case of Apple is under $22 billion and in the case, and these are operational cash flows, and then in the case of Tesla, it is only $16 billion, so about 10 times less. Tesla is left with very little money in the end and these are operational cash flows because there's also financial cash flows which are different. But operationally speaking, look at all the money that Apple produces on a yearly basis. I mean that's a crazy amount of money. And then you have the debt to equity ratio. So in the case of, I believe this can't be, that has to be 26.1. I'm going to check that out. Okay, so in the case of Apple, it's 26.1 whereas in the case of Tesla, it is about 14. Makes sense because Apple is a much older company whereas Tesla basically made all this money by a lot of financing that it got from venture capitalists and from investors, institutional investors as of recently, so they don't need to resort to a lot of debt as compared to somebody like Apple when they've already used up all the money from the investors and they basically have to go and get money from lenders like banks. The profit margin, this is actually surprising based on what we set up here but Apple has a 25% profit margin whereas Tesla has a 15% profit margin. So basically Apple makes a lot more money than Tesla does whenever they produce and then sell one of their products. They also produce a lot of software here so that might have something to do with the fact that it's not being assigned a cost that is all together true whereas Tesla produces mostly hardware so you compare hardware which has an absolute fixed real cost as compared to something like software or even content created in a lot of the places that Apple makes money such as the app store and the music business and the streaming business and then your profit margins are allowed to be a lot higher. And let's look at shares. So Apple has 16 billion shares compared to three of Tesla, also makes a lot of sense. Apple has had more time to grow and therefore produce or basically print out more shares accumulate more value and institutional holding is 60%, compared to 45% although that's not that different and the short. So the percentage of shares that are short in the market is 0.77 as compared to 2.8 in Tesla. This makes a lot of sense. Tesla is a lot riskier, a lot of people short it and that is basically why you have that difference in short percentage. And now we have here market capital, market capitalization or market cap of Apple is 2 trillion compared to 388 billion which is about 1.6 the amount. Enterprise value is 2.1 billion. So you can see how it's very similar two different ways of valuing companies and here as well 388 versus 373. Now look at the PE. So the PE we have 21 compared to 38. So the price that you pay for the stock of Tesla is 38 times its actual earnings whereas the price that you pay for Apple stock is 21 times that earnings. So higher PE companies you want to be careful with that because the higher the PE the more expensive the stock is. Down here we have PS5 and PS6. No these are not playstations. This is the price to sales ratio. So when a company does not have earnings which is not the case for either Apple or Tesla obviously then you have no other option but to look at price to sales. So what is the value of the stock versus how much they sell which is the best approximation you can get to the actual PE. So we've already seen that PE is a way to say or to gauge how expensive a stock is compared to its earnings. So the price of the stock divided by the earnings. So we have here 21 for example for Apple and when a company does not have earnings because it's not making any money yet then you can resort to the price to sales which is the price of the stock divided by the revenue or the sales. Another way or another number you can look at is the price to book ratio okay so the P to B which is meaning the book value right so what's in the book so what is the value of what's in the books and in this case for both of these numbers we have a five and a six so it's pretty similar for both Apple and Tesla but of course these are not you know so important because PE is usually much more important basically because it's closest to the actual discounted cash flow value for the year than what the price to sales would be but you know if you don't have earnings then you got to go with price to sales or price to book and then we have the enterprise value which is another way of valuing how much the company is worth divided by and you have two options either the revenue so this would actually be EVR so and this would be EVP for profit which is actually let me go ahead and correct these I just use it because it was a lot shorter to say EBITDA so you can use these two numbers EVR and EVP as a way to also gauge the idea of how much the company is valued divided by how much it's revenue in this case so for the EVR what we're saying is that Apple is is five times more valuable than its revenue which is the same actually for Tesla which is quite interesting and the it is also 16 times Apple is 16 times more valuable than its actual EBITDA or profit okay so those are also measures that you can use and like I said you can find these on Yahoo Finance I've got some charts over here and we're going to jump over real quick to Yahoo Finance that's basically what all of those values are you can also look at analyst recommendations like I mentioned sorry I just realized I skipped that another thing that you can look at is the number of analysts covering these companies when a company is new then they won't necessarily have a lot of analysts they probably won't even have any analysts okay so like I said another thing that you can look at are the recommendation trends which is very very common originally they only gave you like what is the current actual you know at this moment recommendation is it a buy is it a hold is it a sell and and then now you can actually track it how it has evolved evolved over the past few years or the past few months so in this case we're looking at how many analyst recommendations for strong buy over the past four months how many for buy how many for hold etc etc and they sometimes they'll just you know they'll give you the wording you know buy sell hold sometimes they'll give you a number that's not really material and but more importantly they will give you an analyst price target now this is important analyst price targets in this case which is let me see it says average is 174 it it means that actually the current is 129 so that is the current analyst price target that is whatever the analyst is actually forecasting for the next 12 months okay the analysts if this were only one analyst and it isn't it's actually 41 according to this number up here but if this were actually one analyst and you can go in and dig in and look at the individual analyst recommendations and targets so let's say Morgan Stanley covers this so Morgan Stanley is saying that the current price target that it has is 129 which is attainable in the next 12 months okay in this case this is obviously apple it's not going to be sorry actually I don't know if this is apple I didn't cut out the yeah it is apple according to my slide so this is what they are saying that apple is going to be worth over the next 12 months 129 and in this case they have an average because it's that it's actually an average out of the 41 analysts that gave price targets okay in the case of Tesla the current price target for Tesla is 113 is whereas the average of all analysts is actually 226 and then upgrades and downgrades you can go in and look at the different in this case it was when bush in this case in this case it's me and miss you and they have you know all the different analysts are going to have not just recommendations and price targets but they're also going to say based on that well I'm upgrading this company or I'm downgrading it you know if they see it you know start to to taper or taper off and then start looking kind of bearish and they will go they'll go ahead and downgrade it or obviously the other way around they'll go ahead and upgrade it okay so those are important and there's a couple other things that you can look at in and we'll jump into this right now some of them one of the ones that I like is historical misses so the the beats and misses on earnings which is it gives you an idea of how how often the company has met has beaten or missed EPS forecasts as well as historical earnings and revenues so let's go ahead and jump into apple here and this is yeah this is apple for yahoo finance and like I said you normally when you punch in you know your ticker you'll be taken to the summary the summary does give you some of these numbers will give you market cap PE EPS which are probably the most important ones and dividends because a lot of people a lot of people like to look for dividends but if you go over to statistics you'll see a little bit more detail of some of these numbers that we looked at on that slide like the market cap the enterprise value enterprise value by revenue and by EBITDA you'll see the price to sales and price to book you know the historical price movement the share statistics we looked at shares outstanding as well as as well as the short you know the short ratio how many were shorted you can look at the earnings per share and you can look at the debt the debt to equity remember we talked about and and actually here it is look at this 261 so it is 261 it's not too empty 6.1 so let me go ahead and fix that because I actually changed it because it looked too big of a number so that is kind of scary I mean 261 you know debt to equity that means that you have quite a bit more debt than you have equity but then of course if you're making 122 billion in cash flow per year then you know that's not that bad and and debt is actually a good thing up to a certain point and you can look at a lot of other statistics here here's the historical data I was mentioning you can go ahead and look at okay so no sorry this is historical data for the actual stock price I think it's in financials so there you have for the past few end of the year so this is ending September 2022 2021 2020 2019 so you can look at you know has how revenue has gone from 260 to 394 how EPS has gone from you know 299 to 567 and probably 614 but they haven't closed that so that's probably why they haven't reported it on on Yahoo Finance and you can see here is what I was talking to you guys about the historical beats and misses so this is Apple it's known for beating so here it beat here it beat here it beat here it beat you know it never missed even though a lot of other companies did and Q4 which is in February is I guess is coming up so we'll definitely find out in the next couple of weeks and here's the chart that I was presenting to you guys about you know revenues and earnings so and I believe the analyst recommendations are probably gonna be in here so there's there's a number of analysts covering so look at the number of analysts covering covering Apple so in 2022 and then now in 2023 it jumped like 10 analysts you know so that's obviously a positive sign I mean if you know 10 more analysts are looking at your performance then you're obviously doing something right you can look at EPS over a year ago revenue how many what the revenue estimates were and the number of analysts covering that what the EPS projections were what the EPS trends the growth estimates etc and there's that chart about the recommendations and upgrades and downgrades you can go ahead and look at all of those individually if you want as well so this is where this is actually one of the nicest places even though it is you know yahoo is kind of old for some people but I like to get most of my company information from there so wrapping up how do we use these fundamentals okay so basically what we're trying to find out is yes we can go ahead and jump into an option not so much caring about you know the company's future so for example right now and we're talking January 14 2023 I wouldn't mind jumping into options about you know on Facebook or even Tesla simply because there is there is no big risk from from my point of view there is no big risk to what that you know the future of that company holds if I'm trading options because they are very short-lived so but if you're going to be looking at some more as an investment is a medium or longer term then you definitely want to look at you know further down the road and as as back as far back in history as you can to see what it has done with revenue with dividends with earnings EPS and all those sorts of things so has this company performed well in the past compared to the present and how stable are not just its revenue but its earnings as well what is being projected about its future so we saw very quickly here that you can look at the projections right what they are projecting the revenues are going to be the earnings are going to be and how many analysts are covering it because again like I said this is basically you know giving you a seal of approval if you have a lot of analysts looking into you because analysts are not going to waste your time on companies that are not worth looking into who holds shares and how many shares we looked at institutional holdings versus retail investment holdings institutional investors will move stock prices a lot more than retail investors will although recently with the social media that has changed a bit a lot of retail investors got into a lot of shares and actually moved shares more than institutional investors did we saw that with the meme stocks like GME GameStop and AMC and Bed Bath and Beyond when these retail investors were basically going against these big hedge funds and trying to take their lunch and they did so who holds how many shares is definitely important and are those shares or the company so the price of the shares the P as in P to E or the company as in EV are those overvalued you know is the PE too high and am I paying too much money for the shares or is the EV are or EVP enterprise value over revenue or profits is it telling me that the company is itself is overvalued so how much cash does it have you know debt to equity and cash flow because a company that has more cash and specifically more cash flow is going to be able to weather a downturn a lot a lot better than a company that has less cash flow and again how much debt so those are some of the most important factors that we can look at and will help in our decision to actually go into a company stock you know common shares for the medium or the long term this is not day trading this is not scalping definitely this is not even two to three days swinging this is more long shares we're talking you know three months six months out okay so that is basically what we look for in uh company fundamentals and I hope that this has been instructive for you so I hope to see you in the next one and have a good one