| happydolphin said: Can a company retain all earnings rather than pay dividend? If earnings all retained, then that means the intrinsic value of the company increases, hence its market value should in theory increase. Can a stock be undervalued? (Meaning it holds a value lower than what the company is actually worth?) |
There's nothing that say a company has to pay dividends...
Ideally in a capitalistic word, yes it should, but nothing forces them...
It's just that it's stupid for a company to hold too much money and let it sleep and do nothing and in practice that money is the shareholders money but with today stock market and companies worth hundreds of billions a lot of company don't have shareholders owning a huge share of the company so the ownership is so diluted that the board sometimes ignores the basic shareholders requests ( hello Apple !!)
Retaining capital doesn't actually intrinsicly increase the company value because the fact that a company pays dividends is seen as a value too and a part of the stock price account for that so it's not that easy...
As for your last question it has happened after big crashes that a company stock price is lower than its book value.. Typically that's when the vultures start circling around and want to buy out companies and dismantle them ( think Richard Gere in Pretty Woman).
PS3-Xbox360 gap : 1.5 millions and going up in PS3 favor !
PS3-Wii gap : 20 millions and going down !
