tailieunhanh - Ebook Fundamentals of investing (13th edition): Part 2

(BQ) Part 2 book "Fundamentals of investing" has contents: Stock valuation, market efficiency and behavioral finance, bond valuation, mutual funds and exchange traded funds, mutual funds and exchange traded funds, futures markets and securities, investing in preferred stocks. | 8 Find more at Stock Valuation W LEARNING GOAlS After studying this chapter, you should be able to: Explain the role that a company’s future plays in the stock valuation process. Develop a forecast of a stock’s expected cash flow, starting with corporate sales and earnings, and then moving to expected dividends and share price. Discuss the concepts of intrinsic value and required rates of return, and note how they are used. Determine the underlying value of a stock using the zero-growth, constant-growth, and variable-growth dividend valuation models. hat drives a stock’s value? Many factors come into play, including how much profit the company earns, how its new products fare in the marketplace, and the overall state of the economy. But what matters most is what investors believe about the company’s future. Nothing illustrates this principle better than the stock of the oil driller, Helmerich & Payne (ticker symbol HP). The company announced its financial results for the first quarter of its fiscal year on January 29, 2015, reporting earnings per share of $ with total revenue of $ billion. Wall Street stock analysts had been expecting the company to earn just $ per share with $977 million in total revenue, so the company’s performance was much better than expected. Even so, HP’s stock price slid nearly 5% in response to the earnings news. Why would investors drive down the stock price of a company that was outperforming expectations? The answer had to do with the company’s future rather than its past earnings. In its earnings report, HP warned investors that its earnings for the rest of 2015 would likely be hit by falling oil prices. Indeed, in early 2015 oil prices were lower than they had been in six years, and many analysts believed that the market had not yet hit bottom. Stock analysts who followed HP acknowledged that the company had experienced solid revenue growth and used a reasonable amount of debt. Nevertheless, .