Stock Market Analysis
M Heimann
Principles for Responsible
Management Education
shareholder base = who are the shareholders
How to conduct a stock market analysis
A stock market analysis of a firm should be performed after having
checked the liquidity of the stock and understood the shareholder
base
It is centered on stock market performance which should be
compared to the financial performance of the firm
look at the link between stock market history and
Outline of a stock market analysis
A stock exchange course representative of the value ...
distribution policy to the shareholders
... should enable us to trace a stock market history ....
... consistent with the financial evolution of the company ...
... and its distribution policy to shareholders ...
... allowing to "qualify" the type of market value concerned ...
... and to assess its current valuation according to the future prospects
of the company
1
A stock exchange course representative of the value ...
Shareholders / Public float or free float (portion of shares of a
corporation that are in the hands of public investors as opposed to
locked-in stock held by promoters) if too small it might be dififcult to analyse the influence
Liquidity / volume
Changes in share capital (portion of a corporation's equity that has
been obtained by the issue of shares)
of the shareholders
> Issued (the number of shares which have been allocated)
> Outstanding shares (Shares outstanding are all the shares of a
liquidity is measured by trading volume??
corporation or financial asset that have been authorized, issued
and purchased by investors and are held by them)
> Shares issued = Shares outstanding + Treasury shares (buybacks)
Stock price history
... should enable us to trace a stock market history ....
amplitude = volatility of the stock
Evolution of market prices or market capitalization:
> absolute
• amplitude of variations
• possible cycles
> Relative (benchmarks)
• relative to stock market indices
• relative to comparable values how does the company do compared to market etc
is it earning = what is left after we have paid everyone
... consistent with the financial evolution of the company ... ?
we don't see how much we paid for one share
Change in earnings per share (EPS) and other relevant aggregates
(EBITDA, operating income, etc.)
Evolution of the corresponding multiples:
> Price earnings ratio (PE or PER)
> Capital employed / EBITDA, if the ratio is high = you pay a lot for the earnings
> Capital employed / EBIT,
> Price to book ratio (PBR) so the earnings aren't going to grow a lot probably ?
Coherence of stock market evolution with financial analysis
(profitability / financial structure)
PBR = Price / book value (market value / book value)
book value = on the balance sheet
Diffence beetween the two value : indicates the
expectations in terms of value change
evolution : see for ex if a very high price
earnings suddently drop, wonder if coherent
with the evolution of the financial analysis
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is the financial analysis consistent with amounts of dividents paid over a period divided
... and its distribution policy to shareholders ...
by number of shares
Evolution of:
> Dividends per share
• Dividend yield (rate of return):
dividend yield : how much does an investor get for its
> Annual dividends per share / price per share
• Dividend payout ratio investments
> Dividends / Net earnings or dividend yield / earnings per share (EPS)
how risky is a company : the smaller the + risky
... allowing to "qualify" the type of market value concerned ...
Volatility (beta); correlation to indices
Possible stock market typology:
> growth value? or value stock ?
how to see if a company is a growth company (Tesla)?
> value of return / defensive?
> cyclical value? PBR, distribution policy (if bright future you invest
cyclical : value moving with the market you need to expand so you need capital so you don't
pay dividents), growth company don't always have too muc
earnings
value company : if they give regular dividents with regular amounts, stable earnings year after year, already
in business for a long time. Stock earnings isn't going to be too high
defensive : they are conservative, they protect economic downturns, Nestle for ex that produce goods that are
bought anyway, not very affected by the evolution market
EPS forecast : can be found on websites
... and to assess its current valuation according to the future
prospects of the company
EPS forecasts; EBITD; EBITDA... (eg. financial analysts consensus)
Positioning / significance of current multiples in relation to forecasts
Expected market return (kCP) / return on equity
Is the company making more than what is expected ?
> impact on current Price to book (PBR)
Possibly, more complete stock market valuation should impact (increase) the book value
> Discounted cash flows (DCF)
> Multiples valuation DCF : estimate future cash flows
value of equity = EBIT(A) X Capital employed (B)
EBIT (B) - net debt
not to learn
