‘At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?’— Scott McNealy, Business Week, 2002
I mean it's completely wrong though as you still have shares in the company after getting paid.
A very good rule of thumb is: if someone's mentions dividends when discussing valuation they are clueless. It doesn't always work (paying high dividends has implications ranging from clueless management to political pressure on the company) but it's a very good rule that the argument is nonsense.
This ignores inflation and other factors in the macro environment. But ultimately, any argument that a stock is mispriced is definitionally wrong, because the price of a stock is what someone is willing to pay for it. It's a cliche but it's also an incontrovertible fact, even if people like to ignore it because it invalidates all their arguments.
>because the price of a stock is what someone is willing to pay for it.
It's only true assuming fully efficient markets, which even academic economists studying markets don't do.
The fact someone is willing to pay $100 for one share doesn't mean every share is worth $100.
The fair value of a stock should always depend on the expected cash flow you can receive by holding the stock for perpetuity. Nobody can predict the future, so nobody really knows what the fair value is.
But, if you had 1 trillion dollars and still wouldn't want to pay 1 trillion to acquire an entire company, because you feel you very likely can't make that 1 trillion back, then it's fair to say the company is not worth 1 trillion to you.
https://www.bloomberg.com/news/articles/2002-03-31/a-talk-wi...