Note that I'm criticizing this beliefs, and not the distribution of future probabilities. Of course company might be overvalued now at $250, and sure, it might hit $500 later.
But if you're certain it will be $500 in three years, you need some serious risk aversion (~2500bps) to think it's not worth buying it now at $250.
In other words, by saying it will grow to $500 you're expressing your view on value; this value is higher than price, so stock is undervalued.
But if you're certain it will be $500 in three years, you need some serious risk aversion (~2500bps) to think it's not worth buying it now at $250.
In other words, by saying it will grow to $500 you're expressing your view on value; this value is higher than price, so stock is undervalued.