Published by:
Harvard Business Publishing
Length: 9 pages
Topics:
Securities markets; Valuation
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https://casecent.re/p/48148
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Abstract
Corporate financial officers (CFOs) who successfully second-guess stock market analysts observe three requirements: they avoid the trap of equating a low price-earnings multiple with evidence of undervaluation; they monitor the leading analysts'' perceptions for significant variations from company forecasts; and they translate these forecasts into estimates of economic value. The recommended dividend valuation model uses as its basis a company''s fundamental detriments of value, including its prospects for profitability and its long-run investment opportunities. While companies can profit by outguessing the market, corporate management should assume the correctness of market prices unless disproven by the CFO''s thorough, fundamental valuation.
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Abstract
Corporate financial officers (CFOs) who successfully second-guess stock market analysts observe three requirements: they avoid the trap of equating a low price-earnings multiple with evidence of undervaluation; they monitor the leading analysts'' perceptions for significant variations from company forecasts; and they translate these forecasts into estimates of economic value. The recommended dividend valuation model uses as its basis a company''s fundamental detriments of value, including its prospects for profitability and its long-run investment opportunities. While companies can profit by outguessing the market, corporate management should assume the correctness of market prices unless disproven by the CFO''s thorough, fundamental valuation.