Thread by @garyblack00

Investment terms:
1/ Alpha
2/ Re-rating
3/ Price targets
4/ TAM
5/ Free cash flow
6/ Non-GAAP EPS

1/ Alpha is excess risk-adj return. If the market is +5%, and you own a stock with beta 1.2x (20% more vol than avg), any return above 6% (1.2 x 5%) is alpha. How MM are judged.

2/ Re-rating occurs when the growth rate of a company changes, which changes the P/E multiple. A company that was growing Revs at 10% is now growing Revs at 15% because of a new product or expanded TAM would get re-rated higher (investors would attach a higher P/E to earnings).

3/ Price targets are an analysts’ expectation of where a stock will trade in 6-12 months. That differs from an analyst’s assessment of a stock’s future value e.g.,2025. The 2025 value gets discounted back at a cost of equity. PTs change as the underlying fundamentals change.

4/ TAM is total addressable market. It’s the total opportunity for a company’s products. TAM grows when a company enters a new category (pickups), geography (China), price point (under $30K), or market (robotaxis). Market x share = volume. TAM is the sum of all relevant markets.

5/ Free cash flow is used by investors who think earnings don’t portray a company’s true profitability. FCF is generally:
Net income
+ Depr & Amortiz
+ Def Taxes Chg
+ Working Cap Chg
- CapEx
Some investors use unlevered FCF (add back int after tax) or EBITDA vs Enterprise Value

6/ Non-GAAP EPS adds back stock-based comp (restricted stock and options expense) in the P&L since they don’t require cash, but are incl as shares in the EPS denominator. Nearly all tech companies use Non-GAAP EPS since they issue a lot of stock & options in lieu of cash comp.