To review Amazon and think the discounted cash flow method is the best
valuation model for them. The discounted cash flow valuation method is used
to estimate the value of an investment based on its expected future cash flows
(Fernando, 2022). The present value of expected future cash flow arrives by
using a discount rate to calculate the discounted cash flow (Fernando, 2022).
Right now, the discounted cash flow value of Amazon is $203.43 with the latest
stock price at $142.57. According to DCF, Amazon is up 42.7% (Value investing,
2022). This approach works because we are considering the actual earnings
generated by the company. Also, I think a company such as Amazon is
continuously only going to rise in earnings because of everything they offer. My
company is Tesla. The best Valuation Method is the residual income valuation
model. The purpose of the residual income valuation model is to find out if the
company's decision is going to create more profit for the investors or not.
Because the company type for Tesla is a technology and automobile
manufacturer company. Most investment decisions or plans will take a few
years to come true. With the residual income valuation model, investors can
find out if the decision or plan is going to make more profit in the future or not.
Also, Tesla has a lot of new technologies that other companies do not have. It
can help Tesla create a technology barrier. Tesla can use his new technologies
and products to create more profit in the future. If one day, Tesla cannot create
new products or technologies, the residual income will be lower. Investors can
notice it, and hold their money until a better investment plan.
References
Fernando, J. (2022). Discounted Cash Flow (DCF). Retrieved on August 4, 2022,
from: https://www.investopedia.com/terms/d/dcf.asp
Value investing. (2022). Amazon.com, Inc. Retrieved on August 4, 2022, from:
https://valueinvesting.io/AMZN/valuation/dcf-growth-exit-5y
