Stock Analysis And Portfolio Development Of It Based Companies (Case Study Sample)

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Stock Analysis and Portfolio Development of it based companies

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Stock Analysis and Portfolio Development Name of the Student Name of the Affiliate Institutions Stock Analysis and Portfolio Development Current financial markets require prudence maintenance of portfolio to warrant success. As such, determining the best way to allocate assets is critical to ensure conformity with one’s investment goals and strategies. The current paper undertakes a stock analysis of selected stocks using valuation models. Further, the paper undertakes a portfolio development for clients based on the customer risk tolerance, return, and liquidity objectives. Stock Analysis IBM Valuation Price-to-earnings per share is the method used to value the IBM stock. The method is chosen to analyze the IBM stock as it helps show the expectations the investor has on the company’s stock, state whether the company is undervalued or overvalued (Kariay, 2012). A low P/E ratio implies the company stock may be undervalued hence ideal for investment. Likewise, a low P/E may also mean that a company has upped its performance in the current year compare to its initial performance. IBM P/E ratio= current share price / last year earnings per share Current IBM share price= $172.14 Last year earnings per share= $ 12.38 P/E= 172.14/ 12.38= $ 13.9 Coca-Cola Co share price valuation Price-to-cash flow (PCF) is used to compare Coca-Cola market share value relative to its cash flows for the 2016 financial year. Similar to P/E ratio, a low PCF is maybe an indicator of an undervalued stock while a higher ration may be an indicator of overvaluation (Holmbom, Eklund & Back 2011). The approach was used for Coca Cola industry that attracts large cash flows. A high PCF maybe an indicator that the company is struggling to generate sufficient cash flow hence not ideal to invest in the company’s shares. However, a low PCF is preferred as it shows the investor is paying less per share of the company sales. KO Valuation PCF= Share price/ Cash Flow per Share Cash Flow per Share= (Operating Cash flow- Proffered Shares dividends)/ Common Share outstanding KO 2016 operating cash flow= $8.7496 billion Common Share outstanding= $1.760 billion Cash Flow per Share= 8.7496/1.760= 4.9714 Since the company is operating in the beverage industry where flow of inventory is high, the PCF is ideal for investment. Bristol-Myers Squibb Stock Analysis The dividend discount model is used to value the share price of the Bristol Meyers Squibb. The company is a US pharmaceutical company specializing in offering subscription services to its customers. The dividend valuation model is used to determine the value of the company’s stock. The model, which is referred to as the dividend discount model, valuates a share by discounting the dividend. The model is chosen as it is invaluable in pinpointing the undervalued company. Generally, if the stock value obtained from the model exceeds the current share price, the stock are undervalued hence the need to invest in the company. BMY valuation Share Value= Dividend / (1+ required rate of return) Required rate of return = 13% Dividend for last year= 11.542 Stock Value= 11.52/ (1+0.13) = 10.199 Oracle Stock Analysis Constant perpetual growth model is used to find the value of Oracle stock. The method assumes that the dividends that the company offers grows at a constant rate. The model is chosen due to it ease in predicting the value of the stock with acceptable levels of accuracy. Such is the case since it fails to take into account market conditions such as customer loyalty, ownership of intellectual property, and customer retention. ORCL Valuation According to the Model P₀= D₀ (1+ g)/ (r-g) where r is the required rate of return and g the constant growth rate. Since the net dividend for the company is known, P₀ = D₁ / (r-g) Taking g = 1%, D1= $1.56 P₀ = 1.56/ (0.02-0.01) = $ 156 Therefore, the stock is overvalued. 3M share price valuation The free cash flow to equity model is used to evaluate the value of a company shares. The free to cash flow equity method is used a...

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Stock Analysis And Portfolio Development Of It Based Companies (Case Study Sample)

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