Markets Reverie

As I write this, GameStop's pre-market stock price is around $140. It seems baffling that a brick-and-mortar company in steep decline would receive such strong support in the stock market. Even when you look at their financial statements, it is clear that they have been operating with a net loss for years. So, why is this happening? Simply put, GameStop's stock is in a short squeeze. It should be known that all short positions are publicly available information, so soon enough r/wallstreetbets found out about the GameStop situation in around the Spring of 2020. As a community they believed the stock was over shorted, and thus putting their money were their mouth is bought the stock. One user of note is u/deepfuckingvalue, who invested $53,000 in the Spring of 2020. They have now seen astronomical gains and as of 26th January 2021, have made around $23,000,000. During Spring 2020, GameStop was still a murmur that was mostly contained in the subreddit, but by November 2020, GameS...

  This is going to be my last multiples valuation for now. The reason being is that I fell like my level of analysis when using multiples as a means of valuation isn't satisfactory. However, I will still do my best in giving a sufficient analysis of the Unilever stock.  Let's start by looking at one of the most important ratios, the P/E ratio. As we can garner from the table Unilever's P/E ratio is moderately smaller in comparison to it's competitors. As it has a P/E ratio of 23.5x in comparison to it's competitors' average of 29.6x and its' median of 26.4x. However, this seems to be the case mostly because of how much Nestle stands out as an outlier, with a P/E ratio of 42.4x, whereas the rest of the firms used had values ranging from the mid to late 20.0x range. I chose Nestle as a comparable company to Unilever because they both compete in the food and beverages industry to a certain extent with brands like Knorr (Unilever) Vs Maggi (Nestle) and Breyers (...

  This time around I decided to change industries completely from big-tech to food and beverages. I was eating a bag of Cheetos while thinking of which company I should do my next valuation for and then it came to me. Let's do PepsiCo.  For the comparable companies, I decided to use Coca-Cola, Dr-Pepper, Monster Energy, Nestle, and National Beverage Corp. ( mainly known for manufacturing La Croix). It's obvious that Pepsi's biggest competitor in the soft drink market is Coca--Cola, so it makes sense that Coke would be my first choice. Dr-Pepper is also a rather prominent soft drink brand in the world, so I chose it as another competitor to compare Pepsi with. Monster Energy, even though it is known for making energy drinks, is still big in the beverages industry, thus a perfect choice to chose as a competitor to compare Pepsi with. On the other hand, Nestle is a much more balanced competitor with Pepsi, as it competes with Pepsi in terms of both food and beverages. Whether ...

Unlike a traditional DCF model, doing a multiples analysis with comparable companies is a lot easier and quicker to do. The four companies I used to compare with Apple are: Microsoft, Amazon, Netflix, and Google. I used Microsoft because Apple and Microsoft are competitors in the field of hardware, mainly computers. Amazon and Apple are comparable because they're both tech giants in their respective fields and even have services in common such as Amazon Prime/Apple TV and Siri/Echo. Similarly, Netflix and Apple compete with each other in regards to their streaming services. Google and Apple both produce hardware like  home-pods, phones and computers, despite Apple being considerably larger.  The multiples that I used for the valuation are: EV/Sales, EV/EBITDA, EV/EBIT, and P/E. EV is the Enterprise Value of a company, which can be calculated by subtracting cash and cash equivalents and adding total debt to the Market cap. EV is the true value of a company while taking into acc...

It's been a long time since I lasted posted, but I have to say that it feels good to be back.  This time around I've decided to do a 3-Statement for Apple, that will later feed into a DCF.

  The most difficult part of this valuation was calculating the WACC. WACC equals Cost of debt * Weight of debt ( debt / debt + equity) * (1- effective tax rate) + Cost of equity* Weight of equity. Cost of debt is defined as the interest expenses of that year divided by total debt of that year.

Before doing anything, I worked on calculating the WACC for P&G. I got all the relevant values from P&G's Yahoo finance page and P&G's 2020 10-K. For the cost of debt, I divided 2020 interest expenses ($465,000) by 2020 total debt ($30,092,000). For the weight of debt, I divided the total debt by total debt and market capitalization ($345,583,000). I found the effective tax rate for 2020 in the 10-K, which was 17.2%. I subtracted that value from 1 to get the tax deductible. I multiplied all of these values together to get the total debt portion of capital. For the cost of equity, I used the Capital Asset Pricing Model (CAPM) formula. The risk-free rate is 0.9340%, P&G's beta is 0.4, the S&P's long term average return is 9.24%. I used these values to calculate the cost of equity. The weight of equity is just the market cap divided by market cap and total debt. I multiplied the cost and weight to get the total equity portion of capital. Adding the deb...

  P&G's 3-statement was a lot more conventional than Netflix's, because it includes values like inventory and trade receivables. Consequently, it was a lot easier to comprehend. However, I still need to figure out how to calculate Net Cash Flow: once I figure that out, I will immediately add NCFs to both my Netflix and P&G models.