The present value of FCF is not the only valuation investors may use The stock

The present value of fcf is not the only valuation

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The present value of FCF is not the only valuation investors may use. The stock market can have large affects on a company’s valuation as well. It has been said that the stock market affects individual businesses in two ways. The first being that the stock market influences consumer spending. When the stock market is in a “bull market”, the prices of stocks are rising or they are expected to rise (Chen, 2019b). Consumers who own stocks start to see their portfolio value rise and they start to feel a little wealthier. With more money, consumers may be more
inclined to go out and buy more goods and services which would benefit the company in the form of increased revenues (Investopedia, 2018). On the other hand, when the stock market is in a “bear market”, the stock prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment (Chen, 2019a). Consumers will start to see that their portfolio value is decreasing which may cause them to spend less money. This is especially negative for the companies that sell non-necessity goods and services, like luxury cars and entertainment, because the consumers can live without those things when their money is tight and thus decrease the amount of revenue a company is receiving (Investopedia, 2018). The amount of revenue a company is earning can be important for investors when deciding to invest or not, so the stock market can play a large roll in that revenue number.

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