Diversify Your Portfolio While Beating the Market With This Company
Market capitalization is probably the most straightforward valuation metric that an investor can use, but it is one of my favorites. Market cap simply quantifies the market's overall value for a company once removing its debt. Mathematically speaking, market cap equals the number of shares outstanding times its current share price. The innate beauty behind market cap is that it removes the "price tag" from a company and looks at the whole business.
For example, Nasdaq's (NASDAQ: NDAQ) market cap today sits around $31 billion, which gives me a general sense of the company's size. However, looking at its $190 price tag tells us nothing, at least until other "per-share" metrics give us various valuations. By avoiding these per-share valuations, I am allowed to ask, do I agree with the market's overall valuation for Nasdaq? Simply put, no. I would've guessed it to be closer to the $75 billion or higher range.
Far from scientific, this simple test nonetheless highlights the brand power Nasdaq holds in my mind and is an excellent first step in identifying it as potentially undervalued. In addition to this potentially undersized market cap, Nasdaq offers broad tech diversification and incredible optionality for investors looking to outperform the market.
Source Fool.com
