True value of Lego as a whole....Very undervalued IMO

[bricklayer]

Shouldn't a companies value also take into consideration the resale value its products can fetch on the used market?

Take Mattel or Hasbro for example.

If you lucky, you might be able to get 50% of your money back on the used market (im not talking about waiting 20 years for something to gain value)

Im not shy to buy Lego at full price because I know generally I can recoup 80-90% on the used market short term.

On the other hand, I wait for other toys to go on sale before buying them.

This factor has a direct bearing on the value of the company for new purchases and indirectly for the used market. But I doubt the used value is taken into consideration for companies values.

Just a thought.

[rollermonkey]

No.

TLGs company value does NOT include resale market because TLG gets no profits from those sales. A company's value is based on its profit potential.

Edited October 18, 2014 by rollermonkey

[TheLegGodt]

I am sure it is but not so explicitly as you suggest. Value of a company is the total market value of the shares. This is determined by the expectation of future profits of its greatest aaset: the plastic brick and the sets/models. As long as there are customers like you (and me) that value the models at retail price (maybe even more if we see higher resell prices then TLG can consider raising their prices since we all apperently value the product more) then shareholders will calculate this potential in the share price.

So indirectly, since we value lego (whether it is first or second hand) so much this potential is reflected in the shareprice of TLG and thus in the total value of lego/TLG.

[rollermonkey]

Not in economics or the stock market.

...and TLG clearly doesn't care much about the resale market either, otherwise we wouldn't have the artificial scarcity of sets like Research Institute or the UCS Tumbler. Those sets represent profit that TLG has chosen not to earn, and that isn't something that increases the value of the company.

Let's look at another company, for comparison.

Apple has good sell through of its product. On release day of iPhone x, the stock of the new product sells out worldwide in a couple hours, and Apple gets mad profits because they charge a premium for their product.

They don't just pack up and call it a good day. They make more phones. Investors see the profit realization and the company's value is based on that.

Even if someone buys 20 iPhones on release day and resells them in a country where they aren't available for twice the price, that isn't profit that Apple sees, and that extra profit is not part of the company's value. The profit from the sale of the original 20 phones is, but not the unrealized profit that the reseller makes. The stock market doesn't care that the phones are resold through grey market channels, that profit will never affect the stock price or any dividends because Apple never sees that money.

It is exactly the same for TLG, or any other company with desirable product. The profits the company realizes are part of its value. Profits realized by anybody else are not part of that company's valuation. Brand awareness and popularity don't pay the electric bills and investors see them only as beneficial if the improve the company's bottom line.

Most investors would actually see unrealized profits from this type of scenario as a deficiency of the management to understand its customers. That could drag valuation down, not up.

Edited October 18, 2014 by rollermonkey

[deraven]

What was said above is correct- basically, resale value of the product only impacts company valuation if it causes the sales of new product from the company to increase (whether that be in quantity sold or with increasing product pricing). However, in the case of TLG that doesn't apply since they are privately held and do not have individual stockholders valuing the company by trading shares! ;)

What valuation are you basing the "undervalued" idea on? The only numbers I've seen are hard sales figures or marketshare estimates which don't really speak to total valuation. I guess I have seen a few other numbers floating out there for total value, but generally that's when an analyst is trying to compare TLG against another company, so what they do is take all the publicly available financial information along with sales estimates, etc., and then they compare against the same metrics of publicly-traded competitors to come up with the estimated market value.

I would agree that the numbers that come from that estimate (usually just a little higher than other toy makers) do not reflect what the total value to investors might end up being. I can tell you that at least I myself would place a lot more value on a share of Lego than a share of Mattel because of the perceived difference in quality and goodwill, regardless of the specific earnings numbers. :)