I never said they were always right, but if they are wrong the stock will en up undervalued until value investors swoop in to capitalize on that opportunity. By and large value investors are pretty quick to snap up undervalued stocks. There is more risk involved in short selling so they tend to not be as efficient in driving down the price of an overvalued company.
That’s misleading at best. A companies real value is based on it’s future earnings.
Not even, because no one has a crystal ball to see what the future earnings wil be. I would argue that, when it comes to stock price, there is no such thing as a company's "real value." The only thing that exists is its "perceived value," aka, the price someone is willing to buy/sell it at.
It also helps if there is a clear path for those earnings ending up in the investors pocket. (If a company is just going to squander it’s earrings on dead end business ventures it’s worthless regardless of ho much it makes)
If a company doesn't pay dividends, which is most companies, then the only way that company is going to put money in shareholder's pockets is to create a perception of value so other investors will buy the shares at a higher price. That's it. They create that perception by announcing leadership changes, new products, a pivot to a new market, etc. But no one can predict whether or not those things will actually increase the earnings, and thus, the value of the company.
These are estimates of future earnings, and peoples estimates may vary. You also need to assign a discount rate to perform the net present value calculations, and people may choose different discount rates based on their expected rate of return. I would not classify either of these as “perception” at worst they are educated guesses. Other metrics are mostly just ways to qualify future earnings or compare similar companies.
Ok, but none of that is predicitive of the future. They are, at best, educated guesses. They are attempts to objectively analyze whether or not a particular valuation is justified. And that's important because they are 1)
attempts and 2)not really all that objective as you illustrate by admitting that estimates vary, you need to assign a discount rate (which is different, depending on the analyst), and come up with an expected rate of return, which is really just a guess.
If it were anything better than a guess, then managed funds would always and easily outperform index funds.