Stock Valuation Using the Dividend Discount Model: An Internal Rate of Return Approach

Sim, Thaddeus; Wright, Ronald

doi:10.1108/s0196-382120170000033002

Cited by 6 publications

(6 citation statements)

References 8 publications

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“…However, if there were a sharp cut in interest rates, it would be positive for Zambia's stock market, since it would provide a demand-pull for more investors to move from bonds to equities. Sim and Wright (2017) employ the dividend-pricing model to construct the intrinsic value of the stock, which is equal to the sum of the present value of the cash flow in the future. Liow and Huang (2006) determine that real estate stocks are usually sensitive to changes in long-term and short-term interest rates.…”

Section: Literature Reviewmentioning

confidence: 99%

Time-varying influence of interest rates on stock returns: evidence from China

Wang

2021

Economic Research-Ekonomska Istraživanja

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Whether a stock market should matter or not when monetary policy is concerned seems to be a controversial issue. The purpose of this study is to indicate whether the central bank should use monetary policy to help the stock market or not. Based on macroeconomic data such as interest rate and the stock market, we adopt a novel Bayesian time-varying regression model and determine that the impact of interest rate changes on stock returns varies over time in China, after controlling various macroeconomic factors. Although on average interest rates negatively impact stock price returns, they tend to have an abnormal positive effect at market high points, following a time-varying dynamic pattern. Surprisingly, during periods of overheated economic development, an increase in interest rates cannot suppress the rise in stock prices. Therefore, policymakers need to pay attention when accelerating the marketisation of interest rates and initiating the preventive role of timely and strategic adjustment of interest rates.

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Section: Literature Reviewmentioning

confidence: 99%

Time-varying influence of interest rates on stock returns: evidence from China

Wang

2021

Economic Research-Ekonomska Istraživanja

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“…The most popular method used in the comparable firm approach for the valuation of IPOs is the dividend discount model. That model is based on the proposition that the value of a firm's stock is equal to the discounted value of the infinite cash flow of the expected dividends per share (Rasheed, Khalid Sohail, Din, & Ijaz, 2018;(Gacus & Hinlo, 2018;Sim & Wright, 2017). The other approach firm analysis for the IPO valuation is the discounted cash flow method.…”

Section: Methods Of Ipo Pricingmentioning

confidence: 99%

Valuing local and dual-class IPOs in the Alternative Investment Market

Wahid

Mumtaz

Mantell

2020

Estudios de Economía

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Initial Public Offerings are, by definition, not seasoned securities. They have not been subjected to valuation by the community of investors. It is often difficult or impossible to forecast their future cash flows because most do not have a long history of publicly disclosed financial information. Consequently, valuing IPOs in any market is more difficult than valuing seasoned equities. In this paper, we address the valuation of IPOs in the Alternative Investment Market, (hereafter the AIM.) The purpose of this study is to determine the observable factors that affect valuation in the AIM. We apply OLS, LASSO regression, and Extreme Bounds Analysis (EBA) techniques on historical accounting data to test our theory of valuation. The statistical sample consists of 2,185 IPOs issued on the AIM between 1995 and 2020. Our findings suggest that the market valuation of IPOs in the AIM is systematically related to a multiplicity of factors. These include earnings per share (EPS) in the after-market, operating cash follow per share, and the percentage of shares issued to the public. The findings of the study have a practical value for investors who are interested in buying IPOs in the AIM.

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“…In the study, Dong (2018) employed 2012 was found that the company was undervalued where its stock intrinsic price was below its market A study by Lilford et al (2018) found that at a certain point, the investors' expected return on equity allows the discount price to approach a risk-free rate of return. Sim & Wright (2017)evaluate a stock intrinsic value using the DDM approach. It was revealed that a multi scenario version of the dividend discount model evaluated over a finite period.…”

Section: Literature Reviewmentioning

confidence: 99%

Stock Valuation on IDX-Listed Retail Companies Using DCF with FCFF and Relative Valuation (2021-2025 Projection)

Julia¹,

Hendrawan²

2021

theijbm

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IntroductionThe development in the business world will result in high competition between companies. This situation requires every company to constantly improve and develop its business to meet its objectives and ensure its survival.According to , a company will attract or retain its investors by realizing the company's value that will cause investors to expect a high return on their investment or the value of their stocks in accordance with risk compensation that considers the time value of money invested in the company's stock so that stock performance drop will affect the value of the stock that has been purchased. Damodaran(1995) states valuation is a fundamental analysis by discounting cash flows or using predetermined ratios to analyze the intrinsic value of stocks. Fundamental analysis with valuation consists of four methods, which are Discounted Cash Flow (DCF), Relative Valuation (RV), Contingent Valuation, and Assets Based. In addition, DCF consists of Free Cash Flow to Equity (FCFE), Free Cash Flow to Firm (FCFF), and Dividend Discounted Model.This study employs Discounted Cash Flow and Relative Valuation. FCFF method was also adopted to project future growth potential. FCFF will be accurate if the assumption and the projection are conducted properly. Therefore, three scenarios of assumptions and projections were adopted, which are optimistic, moderate, and pessimistic (Miala & Kristanti, 2019).The retail industry in Indonesia is growing, proven by the opening of retail stores in various places. Retail is a popular industrial sector and has influenced many Indonesians for generations. For example, grocery stores have been spread widely nearly in every region in Indonesia, including in remote villages and major cities. With the population growth, this industry develops at a rapid pace. Since the introduction of modern retail in Indonesia, such as Indomaret, Alfamart, Carrefour, and Hypermart, this industry has grown in popularity (Nurviani, 2013).There are currently 26 companies listed in the Indonesia Stock Exchange (IDX) retail sub-sector, which is in the trade, services, and investment sector. Three of them have the greatest capitalization value, which are PT Sumber Alfaria Trijaya (Persero) Tbk (AMRT), PT Ace Hardware Indonesia (Persero) Tbk (ACES), and PT MitraAdiperkasa (Persero) Tbk (MAPI). The following chart shows the stock price movements of retail companies in 2016-2020.

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Stock Valuation Using the Dividend Discount Model: An Internal Rate of Return Approach

Cited by 6 publications

References 8 publications

Time-varying influence of interest rates on stock returns: evidence from China

Time-varying influence of interest rates on stock returns: evidence from China

Valuing local and dual-class IPOs in the Alternative Investment Market

Stock Valuation on IDX-Listed Retail Companies Using DCF with FCFF and Relative Valuation (2021-2025 Projection)

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