No. of Recommendations: 14
Here’s part of that elusive “reason” lol… the rise in cash which is now well over $300 Billion. That's $300 Billion, approaching 1/3 of the company, that should be carried at 1.00 X. Yes, that’s a depressant on the multiples one should apply to overall BV. A higher multiple demands putting a chunk of that 1.0x book cash to work.
Indeed. I had a comment to that effect in my post and deleted it to keep it simple.
The cash pile is at the high end of the historical range with respect to the size of the firm, but not outrageous--not notably above the historical range, just at the top again. I think it's a bit of a toss-up whether to say (a) it's more than the usual amount of cash so the "fair" P/B ought to be a little bit lower at the moment, or (b) they'll probably find SOME way to invest it with a decent return without an unreasonable delay, as they always have in the past, so the historically typical modest overall multiple on assets is not a crazy approach.
The best case for (b) is empirical: in the past, had you dropped your estimate of fair value during high cash periods, you would have been misled, missing some very good buying opportunities, as observable value has risen like a juggernaut: dips have been transient, and resumptions have always gone all the way back to the prior trend. Admittedly, the next time around might not be the same and assuming the cash won't get deployed sensibly is the conservative stance. But it does go against history.
Objectively speaking, cash does not deserve a multiple. But one might reasonably say that "temporary" cash might.
Jim
