Episode 84: How Stocks Are Actually Valued

Segment 1:

HELLO Lower Alabama! Hello Gulf Coast! Welcome in. Welcome to Coasting in Retirement! Thanks for joining us today, Josh Null here, alongside co-host Payton Null, Payton how are you doing? We are back in Coastal College’s recording studio, beautiful downtown Fairhope, ready to put together another great show for those of you tuning in!

Listeners: Payton and I are here today to discuss financial topics relevant to those of you in or near retirement, living your best life along our part of the Gulf Coast. Here’s what we’ve got in store for you: First segment – deep dive on our topic of the day. 2nd segment - at about 30 minutes past the hour - “Headlines of the Week”. Then at roughly 50 minutes past the hour, stick around for our 3rd segment, we call it” Josh’s Crystal Ball and Big Mouth”. Or was it’s Payton’s big mouth this time? Buckle up, we’ve got a lot to get to!

Quick background on me for those new to the show. Again, my name is Josh Null, I am a fee-based financial advisor, I hold my FINRA Series 65 securities license, and I am the owner of Gulf Coast Financial Advisors, that is a 100% locally owned, 100% independent investment management and financial planning firm with offices in Fairhope, Orange Beach, and Mobile! You can find more information on me and the team at Gulf Coast Financial Advisors by visiting our website gulfcoastfa.com, or feel free to give us a call at 251-327-2124. If you missed that contact info, get a pen and pad ready because we will repeat our contact info several times throughout the show!

Payton, not sure if you heard the news, but SpaceX recently had their IPO (Payton). IPO – Initial Public Offering – and what an IPO it was, the largest in stock market history. In fact, it was so large that as of this recording, SpaceX is valued at over $2.6 Trillion, making it the world’s 5th most valuable company by stock market valuation. And SpaceX has achieved all of this eye watering stock appreciation on a loss – not a profit but a loss – of $5 billion on about $19 billion in revenue last year. To give you a reference point, Amazon, a little company some of you may have heard of, right now has a lower market valuation than SpaceX, despite having made $80 billion in profit on over $700 billion of revenue last year. Let me repeat that: a company that lost $5 billion last year is currently more valuable than a company that made $80 billion in profit, on top of only having 1/40th the revenue.

Obviously, none of this makes any mathematical sense, so for today’s episode we want to dive into whether SpaceX is worth its stock price, and more importantly, the different ways that professional investors value stocks and how this affects your overall portfolio performance.

Regular listeners will recognize this statement: the stock market is a voting machine in the short run and a weighing machine in the long run. While we touch on some of the things that affect stocks in the short run, i.e., why did SpaceX’s stock come out of the gate so overvalued, our main focus will be on long term stock valuation. While picking the next hot stock is a lot of fun, what really produces long term sustainable success in your portfolio is picking companies for the long run.

In general, stocks are ultimately valued by a combination of a company's underlying fundamentals (its ability to generate profit and cash) and the collective market forces of supply and demand. The price you see on an exchange reflects what buyers are willing to pay and sellers are willing to accept at any given moment.

One method that investors have used is intrinsic value. How do you determine intrinsic value? One method is using ratios:

Price-to-earnings (P/E) Ratio: The most common metric. Calculated by dividing the current stock price by the company's Earnings Per Share (EPS). It tells you how much investors are paying for every $1 of earnings. A lower P/E often implies the stock is cheaper or a "value stock", while a higher P/E means investors are paying a premium for future growth. If a company’s stock trades at $100 and it makes $5 a share in profit, it has a P/E of 20. Effectively, you are paying $20 for every $1 of current earnings.

The problem with the P/E ratio is that investors can sometimes treat it like a static grade. They say, "Oh, a P/E of 30 is high, so it’s a bad buy." But they forget that the market is a forward-looking mechanism. A high P/E often just means investors are willing to pay a premium today because they expect earnings to skyrocket tomorrow. On the flip side, a low P/E can be a "value trap"—a cheap stock that’s cheap for a reason because the business is structurally dying. P/E has another major flaw: it’s based on "net income," which can be heavily manipulated by accounting tricks, non-cash expenses, and different corporate tax structures.

Price-to-Sales (P/S) Ratio: Divides the company's market cap by its total revenue. It is heavily used for startups or companies that are not yet profitable. We’ll pick on SpaceX again. There price to sales is around 100x. The rest of the S&P 500 has a price to sales ratio of about 3.5x.
Price-to-Book (P/B) Ratio: Compares the stock price to the company’s "book value" (its actual assets minus liabilities). Warren Buffett made this famous. It is widely used for asset-heavy businesses like banks and insurance companies.

2. Discounted Cash Flow (DCF) Analysis

The most theoretically sound method to value the intrinsic value a stock is the Discounted Cash Flow model.

The theory behind a DCF is simple, even if the math gets complex: a business is worth exactly the sum of all the free cash flow it will generate from now until judgment day, discounted back to today's dollars.

Payton: Right, and because a dollar tomorrow is worth less than a dollar today due to inflation and opportunity cost, if you add up all those discounted future dollars and divide it by the total number of shares, you get the "Fair Value." If that number is higher than the current stock price, the stock is technically undervalued.

The problem with the DCF model is that it is built entirely on assumptions. If you tweak the projected growth rate by just 1%, or adjust your discount rate by half a percent, the calculated value of the stock can swing by billions of dollars. It’s the ultimate "garbage in, garbage out" model.

3. Supply, Demand, and Market Psychology

While fundamental math (like P/E ratios and DCF) dictates the long-term, true value of a stock, daily price swings are dictated purely by supply and demand. If more people want to buy a stock than sell it, the price goes up. This short-term valuation is heavily driven by Investor Sentiment & Speculation.

We mentioned him earlier, Warren Buffett. People often look to Buffett’s style of investing as a benchmark, which makes sense given his very long and very successful career. Buffet is famous for only investing in things that he understands and for placing a high priority on good management. According to google, he also utilizes a couple of ratios that we will briefly mention:

Return on Equity (ROE): He targets a high and sustained ROE, showing the company makes solid returns without relying excessively on borrowed money (Debt-to-Equity ratio).
"Owner Earnings": Rather than just looking at reported accounting net income, Buffett focuses on owner earnings. This is the net income plus depreciation and amortization, minus the capital expenditures required to maintain the business's current competitive position. [1, 2, 3]

Apparently, Buffett also uses Discounted Cash Flows to estimate the intrinsic value of a company, and most famously, require that this calculation show that a stock is trading at a significant discount (e.g., 20% to 30% or more).

With all of these different ratios and formulas, how do we pick our stocks and funds at GCFA? The first thing to understand is that Yield + Growth is going to dictate how we think about any stock, asset class, fund, etc.

Yield = income/dividends paid. Simply put, this is the money that appears in your account regardless of the market's performance that day, week, or month.

Earnings Growth = The engine of company profitability. As companies grow their profits over time, their stock prices follow. This is the most durable component because it's tied to the real economy — innovation, productivity, population growth, etc.

Valuation Change = this is the sentiment of markets, what makes the news in your daily feed. And while valuation change gets all of the headlines, it also has the least impact over long periods. Let me repeat that: the majority of stock market news that you get thrown at you is the least important part of how to pick a stock. Don’t believe me? Let me give you the math:

We'd take this a step further by applying this framework to each stock we hold in portfolios.

Earnings Expectations continue to push higher. The market is going up because earnings are rising, not because valuations are expanding, This is good.

Profit margins exploding higher. This is great for earnings.

The last part of the equation is multiples of earnings. People tend to pay up for growth, which is why you see multiples higher for earnings that are growing or have the potential to grow.

With all of this said, it may surprise listeners that while we hold stocks in a lot of our portfolios, we aren't necessarily huge on stock picking overall...we'd prefer to just own the beta, or in plain English, we don’t constantly hunt for the needle in the haystack, we just buy the haystack. That is because for most investors, portfolio improvement happens at allocation level, not in security selection. Get your allocations right – that is, don’t be afraid of being invested in equities with your long term portfolio, and more importantly, stop letting salespeople and online knuckleheads scare you away from the stock market – and the rest of your financial plan will fall into place.

Alright listeners, if you want to set up a follow-up conversation with the team at Gulf Coast Financial Advisors, it’s easy. You can catch us at 251-327-2124, or find us on our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. There are flexible meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, a 30-minute zoom, or my preference, an in-person meeting at any of our 3 office locations: Downtown Fairhope, Orange Beach just down the road from the Wharf, or in Mobile near the intersection of Dauphin St and I-65. Reach out to us - we would love to meet you!

Alright folks, coming up next - There’s always a lot going on in the world! Particularly the world of finance, investments and money. Every week we scour the internet for financial articles relevant to those of you in or near retirement, then give you our honest opinion about these headlines. So join us after the break to hear Payton and I discuss this week’s relevant news in our “Headlines of the Week” segment. Stay tuned!

Segment 2 - News of the Week:

Josh: Welcome back to Coasting in Retirement, your host Josh Null here, alongside co-host Payton Null. As we discussed the break, every week we scour the internet for financial articles that pertain to those of you in or near retirement. Our job, or at least we tell ourselves it is, is to help you all understand how these headlines impact you, especially when it comes to your money! Note – if you want to read our referenced articles yourself, we also include the links in our show transcript, which you can find on our website gulfcoastfa.com under the podcast tab. Now without further adieu, here’s Payton with the Headlines of the Week!

1. Payton: Our first headline this week comes from Newsweek, and it touches on a massive trend that hits right at the intersection of the tech boom and personal wealth. It’s titled, "How data centers are set to impact the value of your home."

With artificial intelligence expanding exponentially in 2026, tech giants are racing to build massive, hyperscale data centers all across the country. Historically, homeowners have fought these projects, fearing that the industrial noise, towering power lines, and sheer size of the buildings would destroy their local property values. But the article highlights a surprising new study out of George Mason University that analyzed "Data Center Alley" in Northern Virginia. It found that homes closer to these data centers actually sold for higher prices on average, not lower. The researchers point out that data centers naturally gravitate toward areas that already have top-tier infrastructure, reliable power grids, and fiber connectivity—the exact same features that homebuyers value. Plus, these massive facilities generate huge amounts of local commercial tax revenue, which has actually driven down residential property tax rates in some counties by nearly 40% over the last decade.

But while the macro real estate data looks positive on paper, the piece also quotes local community advocates who warn about the hidden, long-term trade-offs—like heavy strain on the local power grid, the physical transformation of rural landscapes, and sudden rezoning battles. From a retirement planning perspective, your home is often a client's largest illiquid asset. When a community transitions into a digital infrastructure hub, how should retirees weigh the financial benefit of a lower tax bill against the actual quality-of-life risks of living next to the physical "cloud"?

Josh: To be honest, when I read that headline my immediate reaction was to look at the math with a massive amount of skepticism. A study showing that property values go up when a massive, buzzing, industrial server farm moves next door feels a whole lot like Wall Street trying to spin a glaring negative into a positive.

Let's look at the actual reality on the ground. These hyperscale data centers are essentially heavy industrial manufacturing plants. They require massive cooling towers that run 24/7, generating a constant, low-frequency hum that has driven neighbors absolutely crazy in places like Virginia and Ohio. They are ringed with high-security fencing, barbed wire, and giant diesel backup generators. To suggest that a homebuyer is going to pay a premium to stare at a fortress of concrete and steel instead of a line of trees is just completely disconnected from how human beings actually buy houses.

What that study is likely capturing is a correlation, not a causation. Data centers move into areas that already have booming economies, booming job markets, and rapid development—which naturally drives up home prices. But if you isolate a home that shares a property line with one of these facilities versus a home three miles away, the quality-of-life impact is a real threat to your equity.

For a retiree, your home is your ultimate sanctuary and often your biggest chunk of illiquid net worth. If you are counting on selling that house to fund your retirement lifestyle, and a data center gets zoned right behind your backyard, your pool of potential buyers shrinks dramatically. No one with young kids or looking for a peaceful retirement is buying next to a server farm. So while the county might enjoy the tax revenue, as an individual homeowner, I’d be highly defensive about these projects.

https://www.newsweek.com/how-data-centers-are-set-to-impact-the-value-of-your-home-11939599

2. Payton: Our second headline brings us right back to our core theme today of how companies are priced versus what they are actually worth. This one is from The Motley Fool, and it is a massive story: "SpaceX Climbed Nearly 20% in Its First Day of Trading."

So the highly anticipated debut finally happened, and retail investors absolutely flooded the gates. Opening at that $135 institutional pricing we mentioned earlier, retail demand immediately sent the ticker flying, closing out Day One up nearly 20% at around $161 a share. This initial "pop" has pushed the company's market cap well past the $2 trillion mark, officially making it one of the most valuable corporations on the planet overnight.

The article pointing this out also gives a heavy dose of caution. It notes that this Day One surge was driven almost entirely by retail FOMO—Fear Of Missing Out—and heavy momentum trading, rather than anyone sitting down to look at the underlying financial ledger. The piece warns that at a $2 trillion valuation, the market is completely ignoring the massive capital expenditures required to keep launching rockets, the reality of satellite degradation cycles, and the fact that its valuation metrics are now trading at multiples that make even the priciest tech stocks look cheap.

Tying this into what we discussed in our first segment, with the "price" going up 20% on the first day of trading, but the intrinsic "value" of the actual business not changing a single bit between 9:30 AM and 4:00 PM, how do you use the valuation tools to discuss SpaceX with your clients?

https://www.fool.com/investing/2026/06/15/spacex-climbed-nearly-20-in-its-first-day-of-tradi/

Listeners, if you want to set up a follow up conversation with the team at Gulf Coast Financial Advisors, it’s easy. You can call us at 251-327-2124, or find us on our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. There are flexible meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, a 30-minute zoom, or my preference, an in-person meeting at any of our 3 office locations: Downtown Fairhope, Orange Beach just down the road from the Wharf, or in Mobile near the intersection of Dauphin St and I-65. Reach out to us - we would love to meet you!

Alright folks, coming up next: Josh’s Crystal Ball and Big Mouth. What have been some of my predictions? Have I been right? Was I ever wrong? How wrong? What do I think is going to affect investors in the near future, or maybe the distant future? We talk about all of these things and poke a little fun at my big mouth. Stay tuned!

Segment 3 – Josh’s Crystal Ball and Big Mouth:

Welcome back! Your host Josh Null here, joined by co-host Payton Null. So, I am opinionated, I have strong opinions at times, I would say a radio show host that isn’t probably wouldn’t be very interesting to listen to. And I am paid in my profession to offer professional guidance and opinions to my clients, so if I don’t have anything intelligent to say, just replace me with AI. I like making predictions, sometimes I hit the bullseye, sometimes I swing and I miss. Is there any crow to eat? Let’s get at with Josh’s Crystal Ball and Big Mouth and find out.

Let’s discuss Payton’s miss on his Netflix / Paramount / Warner Bros prediction.

I want to make a prediction around AI and “middle managers”: Estimates indicate there are roughly 16 to 20 million middle managers in the United States. Historically, research from Harvard Business School and the Bureau of Labor Statistics shows that managers make up about 13 % of the U.S. labor force.

Well, listeners, I hope you enjoyed a little peek into how we form our opinions and make predictions. We invite you one last time, if you would like to have a no-pressure, no-obligation conversation about your investing goals and retirement dreams, you can call us at 251-327-2124, or find us through our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. We have several meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, all the way to an in-person meeting at any of our 3 office locations. You can find GCFA offices in downtown Fairhope, or Orange Beach off Canal Road, or in Mobile near the intersection of Dauphin St and I-65. Reach out to us - we would love to meet you!

That’s our show for this week! I want to give a huge thank you to my co-host Michelle, thank you to the producer of the show, Payton Null, thank you to our show sponsor, Providence Partners and Jay Stubbs, (WalMart lol), thank you to our awesome radio station, FM Talk 106.5 out of Mobile, many thanks to the provider of our show music, local band Sloth Racer, and as always my sincere appreciation for all of your out there that have been listening and joining us on this journey. We would love to be a part of your journey as well! Until we talk again, have a wonderful and productive week. This has been Coasting in Retirement with Josh Null!

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