Replies to post #4507 on Intel Corp (INTC)

[sgolds]

Elmer, stock price (ideally) is about the future value of the company, while book value is about the value at a point in time. Thus stock price is usually higher than book value - one would not invest in a company expecting value to fall.

So, yes, blue sky is a very good way to put it. :)

When the company sells shares, either on the open market or to employees, they do get an increase to net value. In the case of an equity offering this can be a substantial increase, although there is also substantial share dilution. Depending on the price the company gets this may be a good deal or a bad deal.

So what's more important to the investor, the EPS or the book value?

EPS is of more immediate important because it is a measure of future potential in growth or dividends, IMHO. It is the primary determinent of future book value.

Also, we have been talking about an ideal thought experiment here. We haven't introduced the messy concepts of depreciation of assets, for instance. This makes profits even more important because most assets which go into book value degrade over time - you need a certain amount of profit just so your book value doesn't go backwards!

[DewDiligence]

Elmer: many fewer people would object to options if companies issued options only when stock prices were high (and hence exercise prices would presumably be high), and they bought shares in the open market only when stock prices were low. Buy low, sell high is a great business model :-)

Unfortunately, companies have a habit of dispensing a lot of options when stock prices are depressed, and they often end up buying offsetting shares when prices are much higher. Sell low, buy high is not such a great business model :-(