Develop students’ skills in analyzing stocks using the dividend discount model (DDM) and comparing theoretical valuations with current market valuations using Bloomberg Terminal. This project integrates financial theory with practical application in equity analysis.
Stock Selection
Each student is assigned a publicly traded company that pays regular dividends. This step encourages students to explore different industries and companies, enhancing their understanding of diverse market sectors.
Data Collection
Use Bloomberg Terminal to collect historical dividend data, expected dividend growth rates, and current stock prices for the selected company. This data will form the basis for the valuation analysis.
Analysis Tasks:
Dividend Discount Model Application
Apply the Dividend Discount Model to calculate the intrinsic value of the selected company’s stock. This calculation will involve using the formula:
Choose an appropriate discount rate based on the company’s risk profile and industry averages.
It encourages students to creatively assess different scenarios by altering growth and discount rates to see how they impact valuation.
Market Valuation Comparison
Compare the calculated intrinsic value with the stock’s current market price to determine whether it is overvalued, undervalued, or fairly valued.
Discuss the potential reasons for discrepancies between the theoretical value and market price, considering market sentiment, investor expectations, and recent company news.
Reflect on how investors perceive value differently and empathize with the challenges investors face in predicting future company performance.
Deliverable
Prepare a detailed three-page report containing the following:
Explain the dividend discount model and the rationale behind the chosen growth and discount rates.
Tables and graphs depict the dividend trends, valuation calculations, and comparison with market prices.