Damodaran A 2016 outlines that a corporations stock price is a reflection of

Damodaran a 2016 outlines that a corporations stock

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Damodaran, A. (2016) outlines that a corporation’s stock price is a reflection of the value investors are putting in their investments. In other words, a stock’s price to earnings (P/E) ratio signifies how much investors are willing to pay for each earned dollar. From a financial perspective, a high ratio implies that investors anticipate high earnings. Nonetheless, Jordan, Miller, & Dolvin (2015) argue that a high ratio does not necessarily mean that a stock is a good investment – the stock may have been overvalued. Therefore, investing in such a stock can result in loss of money for investors. Contrariwise, a low ratio may imply that stocks are undervalued and buying such stocks may generate high profits once their prices rise. That said, sometimes low ratios indicate lack of growth potential. Best Buy has a ratio of 15.15 compared to the industry’s 10.3 indicating that the stock is valuable. Market cap is a measure of business value based on the number of outstanding shares and their prices. Specifically, it is a representation of the industry’s view of a firm’s stock value and is essential in valuing its stock. Best Buy has a market cap of 22.3 billion and according to
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STOCK VALUATION AND ANALYSIS 3 Jordan, Miller, & Dolvin (2015), most corporations with such caps are categorized as big or large caps – they are relatively secure and stable within the markets in which they operate. On the other hand, beta is critical in measuring the volatility of a stock in comparison to the market. A
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  • Fall '15
  • Mr. Njoroge
  • Value investing

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