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

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 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