equity market investment strategy

equity market investment strategy

Stock buying is not a difficult task however selecting the company that will consistently beat the stock market is the most challenging things. Corporate valuation is considered as one of the most challenging tasks when making an investment decision. Managers use a different value of company stock. Before making an investment decision, investors are required to value the present and future value of the company applying different equity market investment strategies (Carey, 2013).  This report will estimate the value of the company using the historical, current and future performance.  This report will use the fundamental financial strategy to measure the performance of the company. This method evaluates the intrinsic value of the stock and analyzes the factors that are likely to influence share price in future. The method is based on external influence and financial statements as well as industry trends.

Forecasting the corporate growth, it good considers considering the historical growth of the economy in which the company operate. Despite many challenges, the beverage industry has continued to maintain long term growth. In the last decade, the US economy has experienced steady growth (Williams, 2013). Government has continued to introduce both monetary and fiscal policies to boost the economy and minimize the cost of operation.

The economy growth trend is expected to decrease due to the current dynamics in the market place. The inflation rate, as well as the current unstable global economic trend, is expected to affect the beverage manufacturing companies.

According to the IMF’s World Economic Outlook (2019), global revenue growth is projected to grow by 3.01% in 2020 and 3.41%by 2020.  This forecast demonstrates a decrease in industry. The industry will be significantly be affected by the risk of COVID-19.  The risk of COVID 19 will have negative on the economy and hence affect the performance of the company. The major risk for Coca Cola comes from its competitors. To measure the market value we will use the performance indicators of the computers. The main competitors in this industry include Pepsi.

The Coca Cola revenue growth is expected to increase in the next 5 years. Using the Global economic growth we can be able to describe the company economic growth. The company growth rate is pegged on the population growth rate and economic growth. Based on the average economic growth, the company operating growth is expected to grow by 3.4 in the next 5 years.  In the short term, the revenue growth rate is influenced by the competitor price war, customer spending and appreciating dollar (Crosby and Henneberry, 2016). The company organic revenue is expected to grow by 5%

DCF Analysis

Discounting cash flow analysis is applied to measure the intrinsic value of the company.  Base on the DCF analysis the value of the company is estimated at $4.01 per share.  In the past year, the revenue for the company increased by 16.98%.  Over the last decade, the company revenue has shown a fluctuating trend.

The assumptions for the analysis is that the risk-free rate of borrowing is at 8%, the market premium is 5.5%, the cost of lending is at 3.3% while the company beta is 0.6.  Base on the DCF analysis the company value is expected to have an increasing trend.

Multiple analyses

Multiple analyses is a valuation strategy where one uses the market average to estimate the stock price. To analyze the corporate value, we compare the company relative to the performance of peer companies operating in the same industry. The pear companies are selected to benchmark are selected based on the company size, capital structure and financial preference.   Considering different global economics and political situations PepsiCo, Inc. (PEP) and Britvic plc (BVIC.L) were selected for this analysis. The two companies are categorized in the Food Beverage & Tobacco category of international companies.

The price of share price using the price-earnings ratio (P/E) was used to estimate share price. The method assumes that all companies operating in the same sector will have a similar price-earnings ratio.

P_o = EPS X Average P/E of comparable companies (Industry). The company price earning ratio is estimated to be $5.5 (see appendices 2)

Other multiple analysis methods used to benchmark the company include P/E to growth ratio, price to sale ratio, enterprise value/EBITDA and share price/ EBITDA.

Based on the P/E to growth ratio, the revenue growth of the selected company is multiplied by the multiple P/E growth times the EPS.

EV/EBITDA provides the fair value of the company. This value does not consider different capital structure thus making it better to measure the market value of a stock.  The stock price depends on the organization EBITDA, thus firm with higher EBITDA will have a stock price. The accepted range for EBITDA is between 6.0 x to 18.0x (Pinto and Stowe, 2015). Coca Cola EBDITA is at 9.4  xs meaning that the company is fairly valued.  However, this valuation strategy may be affected by low operating profit. Some company may have high growth and at the same time high profit and share price. In such case it most likely that the company stock price will be undervalued (Aspris 2013)

Companies are considered to have two values the book value and the market value. The book value represents the actual value of the company, while the market value represents the value of the company based on the market performance (Bielecki and Rutkowski, 2015). Based on the market value the company is estimated to have a share price of $ 9.4 per share while the actual value is estimated at $5.59. The assumption behind the discounting cash flow method is that the company will reinvest all its cash flows. It is also assumed that the company cost of capital is going to change.

Reference List

Bielecki, T.R. and Rutkowski, M., 2015. Valuation and hedging of contracts with funding costs and collateralization. SIAM Journal on Financial Mathematics, 6(1), pp.594-655.

Carey, K. 2013, ‘AFGC predicts modest growth for food and beverage industry’, Australian Food News,30

Crosby, N., and Henneberry, J. 2016. Financialisation, the valuation of investment property and the urban built environment in the UK. Urban Studies, 53(7), 1424-1441.

International Monetary Fund 2018, World Economic Outlook, International Monetary Fund, ISBN 978-1-

61635-555-5, viewed 21 April 2018, < http://www.imf.org/external/pubs/ft/weo/2013/01/pdf/text.pdf

Meier, J., Findley, F., and  Stewart, D. W. 2018. Applying the MASB Brand Investment & Valuation Model. Marketing Accountability Standards Board White Paper.

Pinto, J. E., Henry, E., Robinson, T. R., & Stowe, J. D. (2015). Equity asset valuation. John Wiley & Sons

Williams, K. 2013, ‘Coca-Cola Amatil hit by Pepsi price war’, Sydney Morning Herald, 7 May, viewed 14 May 2013,

Appendices 1

Appendices 2