It may prove difficult to value a company that habitually loses money. Companies in their infancy phase, when they reinvest everything into growth, often operate with negative margins. They believe current investment into growth will pay off in the future, much like Starbucks in the 1990s. Other companies, ones that are asset intensive, also operate losing money much of the time.
Instead of building new retail locations, asset intensive businesses, like USG Corporation, a manufacturer and distributer of building materials, spend money on constructing manufacturing facilities. So, how might an investor go about valuing a company that has unpredictable earnings? Continue Reading »