Approaches to common stock valuation

Vera Gribanova

Bachelor's thesis

Abstract:

The main purpose of the author’s work is to use theoretical knowledge about approaches to common stock valuation in the process of making real investment decisions. In achieving my main goal, the author will consider various techniques and approaches, theoretical aspects of the stock market. A study of the company's common stock will help predict the future behavior of the stock under study and make the right investment choice based on the fact of over or under valuation of a given stock. The sub-goal of the analysis is to study approaches to common stock valuation, to be grounded in this topic and keep up with developing trends and also decide which company out of three chosen for the analysis – Take-Two, Activision and Electronic Arts is more suitable for potential investments into gaming industry. In this thesis for analyzing and evaluating common stocks, the author wants to mention the use of two main approaches: absolute valuation that is sometimes called discounted cashflow method and relative valuation approach that rests on comparables. In the first method, cash flow discounting path is used. In the second method, the author relies on the market value of comparable stocks. Both approaches will be analyzed in the specific situations of individual companies. To conclude, the author highlights the following findings: both methods of valuation are extremely useful and should be used together, not individually; out of three companies chosen for the analysis (Electronic Arts, Take-Two and Activision), Electronic Arts proved itself to be more reliable and safer investment option based on analysis of P/B, P/E, P/CF, volatility and DDM model; The author concludes that investments in gaming industry should be treated with additional precaution due to the fact that the price of stock is highly dependent on the quality of individual products and reception of audience.

Keywords

companies, valuation, DCF approaches, relative valuation, absolute valuation, common stock, capital market, market price, financial reports, Take-Two, Activision, Electronic Arts, gaming

Language used: English

Date on which the thesis was submitted / produced: 26. 11. 2022

Thesis defence

• Supervisor: Ing. Jana Kalabisová, Ph.D.

Czech University of Life Sciences Prague

Faculty of Economics and Management

Bachelor programme:
Business Administration