PowerPoint presentation

Derius Hopkins

Purdue University Global

FI499 Bachelor’s Capstone in Finance

Dr. Ernesto Escobedo

5-13-23

Valuation

There are different methods for valuing individual stocks, depending on the type of company and the investor's preferences. Here are three common ways to value individual stocks:

Fundamental analysis: This technique includes analyzing the organization's fiscal reports, income, development figures, industry patterns, and other pertinent elements to assess its inborn worth. The financial backer can then contrast this worth with the ongoing business sector cost of the stock and conclude whether it is exaggerated or underestimated. The price-to-earnings (P/E) ratio, An illustration of a fundamental analysis tool, is the price-to-earnings ratio, which indicates how much the market is willing to pay for each dollar of earnings (Ghaeli, 2016). A stock with a lower P/E ratio is more affordable, while a higher P/E ratio is more expensive.

Technical analysis: Using a variety of indicators and charts, this method examines the patterns and trends of the stock's price movements and volume over time. The investor can then use this data to predict how prices will move and determine the best trading entry and exit points. The moving average, which displays the stock's average price over a given period, is one type of technical analysis tool (van Rossum, 2019). A rising moving average indicates an upward trend, while a falling moving average signifies a downward trend.

Discounted cash flow (DCF) analysis: Appropriate discount rates are determined by estimating a company's future cash flows and discounting them to their present value. Fair value is calculated as the sum of these discounted cash flows, divided by the number of outstanding shares, to establish the fair value per share. By comparing this value with the stock's current market price, investors can determine whether it is overvalued or undervalued. The free cash flow to equity (FCFE) is a tool for DCF analysis that measures the amount of cash available to shareholders after operating expenses, taxes, and debt obligations have been paid (Afriani & Asma, 2019).

To contrast individual stocks and homegrown and unfamiliar organizations, one can utilize different measurements, for example, market capitalization, income, profit, development rate, profit yield, return on value, etc. For instance, one can look at Apple (AAPL) with Microsoft (MSFT) and Samsung (SSNLF) utilizing a portion of these measurements:

Metric	Apple	Microsoft	Samsung
Market cap	$2.5 trillion	$2.3 trillion	$0.4 trillion
Revenue (2022)	$365 billion	$190 billion	$230 billion
Earnings (2022)	$86 billion	$69 billion	$29 billion
Growth rate (2022)	12%	15%	10%
Dividend yield	0.6%	0.8%	1.9%
Return on equity	127%	44%	10%

Apple has a higher market cap, revenue, earnings, return on equity, and dividend yield than Samsung and Microsoft but a lower growth rate and dividend yield. As a result, investors who place a higher value on stability and profitability may be better suited to Apple than Microsoft and Samsung investors.

Corporate and government bonds can be valued in various ways, each tailored to the investor's preferences and the bond's quality. The following are three common methods for valuing bonds:

Yield to maturity (YTM): This strategy includes computing the annualized pace of return that a financial backer would get assuming they purchased the security at its ongoing business sector cost and held it until development. The YTM considers the bond's face value, coupon rate, maturity date, and market price (Varirahartia & Marsoem, 2022). A bond with a lower YTM is more expensive, while one with a higher YTM is more affordable.

Credit spread: The difference in yield between a corporate bond and a comparable government bond with similar maturity and risk characteristics is measured using this strategy. The additional risk premium that investors demand when holding a corporate bond over a government bond is reflected in the credit spread. A more extensive credit spread infers a less secure bond, while a smaller one suggests a more secure one.

Duration: Estimating the bond's price sensitivity to changes in interest rates is part of this strategy. The duration tells investors how long the bond's cash flows take to repay their initial investment. A bond with a longer duration is more likely to be volatile than one with a shorter duration.

References

Afriani, E., & Asma, R. (2019). Analisis Valuasi Harga Saham Dengan Price Earning Ratio, Free Cash Flow To Equity Dan Free Cash Flow To Firm Pada Perusahaan Manufaktur.  Jurnal Sains Manajemen Dan Kewirausahaan,  3(2), 111-123.

Ghaeli, M. R. (2016). Price-to-earnings ratio: A state-of-art review.  Accounting,  3(2), 131-136.

van Rossum, H. H. (2019). Moving average quality control: principles, practical application, and future perspectives.  Clinical Chemistry and Laboratory Medicine (CCLM),  57(6), 773-782.

Varirahartia, D., & Marsoem, B. S. (2022). Effect of Bonds Maturity Date, Interest Rates, Inflation, Exchange Rates, and Foreign Exchange Reserves on Yield To Maturity of Government Bonds 2014-2020.  Jurnal Syntax Admiration,  3(2), 373-387.