equity_valuation

equity_valuation - FINANCE 431 INVESTMENTS Equity Valuation

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FINANCE 431 INVESTMENTS Equity Valuation
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FIN 431: Investments 2 Fundamental Stock Analysis: Models  of Equity Valuation Basic Types of Models Balance Sheet Models Dividend Discount Models Price/Earning Ratios Estimating Growth Rates and Opportunities
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FIN 431: Investments 3 Intrinsic Value and Market Price Intrinsic Value Self assigned Value Variety of models are used for estimation Market Price Consensus value of all potential traders Trading Signal IV > MP Buy IV < MP Sell or Short Sell IV = MP Hold or Fairly Priced “margin of safety”
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FIN 431: Investments 4 Dividend Discount Models: General Model V D k o t t t = + = ( ) 1 1 V 0 = Value of Stock D t = Dividend k = required return
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FIN 431: Investments 5 No Growth Model V D k o = Stocks that have earnings and dividends that are expected to remain constant Preferred Stock
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FIN 431: Investments 6 No Growth Model: Example E 1 = D 1 = $5.00 k = .15 V 0 = $5.00 / .15 = $33.33 V D k o =
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FIN 431: Investments 7 Constant Growth Model Vo D g k g o = + - ( ) 1 g = constant perpetual growth rate
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equity_valuation - FINANCE 431 INVESTMENTS Equity Valuation

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