Dipesh Jain Title Page

Fundamental Stock Valuation Case

Case & Homework Assignment

Master of Business Administration & Engineering

Dipesh Jain
-
Matriculation number: s0581383

Date:
Berlin, 05.11.2021

Guided By:
Prof. Dr. Thomas Rachfall

Fundamental Stock Valuation Case Ⅰ

Dipesh Jain Abstract

ABSTRACT

Fundamental analysis is a method of determining a stocks real or fair market value. With the
help of fundamental analysis, we can search for stocks that are currently trading at higher or
lower than their real value. Key fundamental indicators such as PE ratio, PB ratio, Earnings per
share and the Dividend yield are used to carry out the fundamental analysis. This assignment
evaluates these ratios of 4 top companies in global market along with carrying out their
benchmarking to identify the best-in-class company.

Keywords: Fundamental Metrics, Overvalued, Undervalued, Peer, Earnings momentum.

Fundamental Stock Valuation Case IⅠ

Dipesh Jain List of Abbreviations

LIST OF ABBREVIATIONS

PE Ratio: Price to Earnings ratio

PB Ratio: Price to Book Ratio

EPS: Earnings per share

EM: Earnings Momentum

ROI: Return on Investments

Fundamental Stock Valuation Case IIⅠ

Dipesh Jain List of Figures

LIST OF FIGURES

Figure 1 Benchmarking based on ROI and ROS 1

Figure 2 ROS 2017-2020 / 2022 Forecast 1
Figure 3 Benchmarking based on ROI and ROS 1
Figure 4 Valuation/ Earnings Momentum Matrix 2
Figure 5 VIACOM Stock Chart 3
Figure 6 Walt Disney Stock Chart 3
Figure 7 AT&T Stock Chart 3

Fundamental Stock Valuation Case IV

Dipesh Jain Index of Formulas

INDEX OF FORMULAS

𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

1. 𝑃𝑟𝑖𝑐𝑒 𝑡𝑜 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑟𝑎𝑡𝑖𝑜 =
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

𝑀𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

2. 𝑃𝑟𝑖𝑐𝑒 𝑡𝑜 𝐵𝑜𝑜𝑘 𝑟𝑎𝑡𝑖𝑜 =
𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑝𝑟𝑒𝑓𝑓𝑒𝑟𝑒𝑑 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠

3. 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 =
𝐸𝑛𝑑 𝑜𝑓 𝑝𝑒𝑟𝑖𝑜𝑑 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠ℎ𝑎𝑟𝑒 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

𝐸𝐵𝐼𝑇
4. 𝑅𝑂𝐼% = ∗ 100
𝑇𝑜𝑡𝑎𝑙 𝐵𝑜𝑜𝑘 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡/𝐸𝐵𝐼𝑇
5. 𝑅𝑂𝑆 =
𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠

Fundamental Stock Valuation Case V

Dipesh Jain Table of Contents

TABLE OF CONTENTS

ABSTRACT………………………………………………………………………………….. Ⅱ

LIST OF ABBREVIATIONS.……………………………………………………………….. ⅡI

LIST OF FIGURES…………………………………………………………………………...IV

INDEX OF FORMULAS……………………………………………………………………...V

TABLE OF CONTENTS……………………………………………………………….…….VI

INTRODUCTION...……………………………………………………………….….……... 01

OBJECTIVES……………………………...……………………...………………….............01

METHODOLOGY…………….….……………………………………………………......... 01

3.1. ROI & ROS…………………………………………………………………………….01

3.2. FUNDAMENTAL METRICS ANALYSIS……………………………………………02

3.3. CHART ANALYSIS…………………………………………………………………...03

2. PEER GROUP…………………………………………………………………………... 04

3. CONCLUSION…………………………………………………………………………. 04

REFERENCES……………………………………………………………………………....VII

Fundamental Stock Valuation Case VI

Dipesh Jain Homework

1. Introduction

Evaluating a company’s financial background with the purpose to invest is always intriguing.
However, one cannot just judge a company on assumptions or rumors. The proper way to
examine the past financial records/balance sheets of the company and its current performance
in the market as compared to its peers, so as to predict the future growth of the company is
called the Fundamental Analysis. This process is not only limited to the company’s financials
but also with the general economic scenario, the industry’s growth and fall, along with the
company’s organizational structure and management.

2. Objectives

In this report, fundamental analysis of 4 companies – Viacom, Sab miller, Walt Disney, and
AT&T has been carried out to determine which stock needs to be bought and which stock
needs to sold or kept on hold or observe. After the evaluation, a peer company has to be found
out which is considered to be undervalued on the market.

3. Methodology

3.1. ROI & ROS

ROI & ROS for the year 2017-2020 have been calculated as per the given formulas.

Figure 1 ROI 2017-2020 / 2022 Forecast

Figure 2 ROS 2017-2020 / 2022 Forecast

Figure 3 Benchmarking based on ROI and ROS

Fundamental Stock Valuation Case 1

Dipesh Jain Homework

Financials of the above companies have all been affected by the Covid 19 pandemic. It was due
to an external factor and not because there was something wrong in the company. Hence
forecasting based on the year 2020 is difficult as some companies faced tremendous loss such
as the entertainment industry (Walt Disney), because of the closed attractions, theme parks,
delayed shootings, etc. But now everything is starting to get back to normal and the companies
may also return to their financial stabilities as in the previous years. Hence forecasting based
on just last 4 years of data would be inaccurate. However as per the assignment, based on the
data we found that Viacom is the best-in-class company based on its ROI and Sab Miller is the
Worst in class.

3.2. Fundamental Metrics Analysis

Figure 4 Valuation/ Earnings Momentum Matrix

We can see that by putting all the companies in the Valuation/Earnings momentum matrix, we
can derive that AT&T is the share to Buy, Walt Disney is the share to Hold, Viacom is the
share to Observe, and Sab Miller is the share to Sell.
Also, we can observe that earnings momentum of Walt Disney was quite unusual between the
second and third quarter. It is due the Covid-19 situations and the restrictions place on the
company by the government during this crisis.

Fundamental Stock Valuation Case 2

Dipesh Jain Homework

3.3. Chart Analysis

SAB Miller plc was a British multinational brewing and beverage company headquartered in
Woking, England on the outskirts of London until 10 October 2016 when it was acquired by
Anheuser-Busch InBev. Hence Stock price chart of Sab Miller is now unavailable.

Viacom (VIAC) had steep drop in share prices in April after which the price has slowly but
consistently moving in downward trends.

Figure 5 VIACOM Stock Chart

Walt Disney (DIS) has been trying to stay above the 170 mark thus forming a descending
triangle pattern. Price is currently at the support and may give a breakout in the coming
sessions.

Figure 6 Walt Disney Stock Chart

AT&T (T) is showing a downward trend continuously since June 2021. However, it looks
like the stock has been oversold which led to decrease in its share price and may thus bounce
back in a few sessions.

Figure 7 AT&T Stock Chart

Fundamental Stock Valuation Case 3

Dipesh Jain Homework

4. Peer Group
According to my research, the company Discovery listed on the American stock exchange
(Tik: DISCK), is an undervalued company compared to Walt Disney.

Discovery has a PE ratio of 9.06 as on November 3rd, 2021. It also has a PB ratio of just 0.92
and thus have a tendency to at least reach 1.0. It also has a Price to Cash Flow ratio of 7.48
which is less and indicates the potential for cash flow generation.

Also, Verizon can be called an undervalued compared when compared to Viacom and AT&T.
It has a PE ratio of 9.86 and a price to cash flow ratio of 9.59.

5. Conclusion

After performing the fundamental analysis for all the four companies, we can see that AT&T is
the best stock to buy right now and Viacom is good to invest in the future.
But after comparing the financial performance benchmarking with the results of the
fundamental metrics, I found that AT&T isn’t the best-in-class company but instead its Viacom.
I think that the Covid 19 pandemic may have affected the fundamental analysis as the
company’s financials were fluctuating in that particular year. So, fundamental analysis has to
be carried out on large number of past data and cannot be used to forecast the financials of the
company with just 3 years of data and during the times of such a pandemic. However, based on
past data and calculated ROI/ROS, Viacom seems a better choice for investment.
Hence, I would like to invest in VIACOM

Fundamental Stock Valuation Case 4

Dipesh Jain References

REFERENCES

https://www.macrotrends.net/
https://www.tradingview.com/
https://www.wsj.com/

Fundamental Stock Valuation Case VI