FIN 501 Trident University Module 2 Apple Inc Stock and Bond Valuation Paper Module 2 – SLP STOCK AND BOND VALUATION For your second SLP assignment, conti

FIN 501 Trident University Module 2 Apple Inc Stock and Bond Valuation Paper Module 2 – SLP
STOCK AND BOND VALUATION

For your second SLP assignment, continue to do research on the company you chose to write about for your Module 1 SLP. This time you will be doing research about the valuation of the company to try to determine if its stock price is overvalued or undervalued. You can use Google Finance, Yahoo Finance, or similar Web pages to find the financial information about this company.

Write a 2- to 3-page paper with the following items:

What is the P/E ratio of this company? How does the P/E ratio compare to other companies in this industry? Based on the P/E ratio, do you think the company is overvalued or undervalued?
Find the company’s balance sheet. Calculate the book value of each share. This can be done by taking the total assets and subtracting total liabilities. Then divide the number you get by the total number of outstanding shares. Is the number you get higher or lower than the current price of the share? Based on what you’ve found, would you say the stock is overvalued or undervalued?
Finally, do a search on what different analysts have to say about your company. Do they generally recommend buying the stock or selling the stock? What reasons to they give for their assessment? Find at least three analyst reports about this company.
SLP Assignment Expectations
Answer the assignment questions directly.
Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
For computational problems, make sure to show your work and explain your steps.
Module 2 – Background
STOCK AND BOND VALUATION
Required Reading

Start off with these two tutorials that will give you an overview of the basic methods of valuing stocks and bonds from Subjectmoney:

Subjectmoney. (2013, January 2). How to price/value bonds – formula, annual, semi-annual, market value, accrued interest [Video file]. Retrieved from https://www.youtube.com/watch?v=7zCqoED8MVk

Subjectmoney. (2013, January 3). Dividend discount model (DDM) – constant growth dividend discount model – how to value stocks [Video file]. Retrieved from https://www.youtube.com/watch?v=n76Pz3HOBPo

Now dig much deeper into bond and stock valuation with the following books chapters. They cover not only the computational methods but also provide a general overview of stock and bond markets:

Read “The Basics of Bond Valuation,” from Volume I (pp. 207-224) in:
Fabozzi, F. J. (2013). Encyclopedia of Financial Models. “Bond Valuation.” John Wiley & Sons, Inc. ISBN:1-118-00673-9, 978-1-118-00673-3. Available in the Trident University Library.

Fabozzi, F. J., & Peterson Drake, P. (2009). Chapter 7: Asset valuation: Basic bond and stock valuation models. In Finance: Capital markets, financial management, and investment management. Wiley. Available in the Trident Online Library.

Finally, for some examples of valuation calculations in Excel see the following videos:

Moy, M. (2014). Bond valuation in Excel. Retrieved from https://www.youtube.com/watch?v=H-_NP0UxX_U

Girvin, M. (2010). Stock valuation with dividend growth model. ExcellsFun. Retrieved from https://www.youtube.com/watch?v=cbRIhwkGAnQ

Girvin, M. (2010). Stock value based on present value of future dividend cash flows. ExcellsFun. Retrieved from https://www.youtube.com/watch?v=G2VIY5E3I3s&t=163s Running head: PRESENT VALUE AND THE RISK/RETURN TRADE-OFF
University
Name
Module 1 SLP
FIN501: Strategic Corporate Finance
10 July 2020
1
PRESENT VALUE AND THE RISK/RETURN TRADE-OFF
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Apple’s Stock Analysis
Apple Inc. is one of the leading giant companies in the world. The company is known for
its innovative products and its good performance, which translates to high profits and high
returns to its investors. Led by Tim Cook as the CEO, the company has over the last decade
focused on coming up with innovative, quality and simple products and this is the one thing that
outstands for the company (Zhang, 2018). Apple products are not only highly innovative but also
which are quite durable and simple to use. Apart from this, Apple products also provide an
exceptional customer experience. Zhang (2018) considers Apple products as those which provide
high-end to end customer experience from design to use and this aspect also outstands for the
company. Besides this, the other interesting aspect of Apple Inc. is its diversity in product
variety. The company’s product variety is unbeatable from iPhone, iPad, smartwatches, the
Apple TV, iPod and the upcoming Green energy car. Therefore, these and other interesting
aspects of Apple Inc. have made the company more successful than other companies, resulting in
its high profitability.
Beta and Risk analysis
According to NASDAQ, Apple’s stock currently has a beta of 1. This means that the
company has a relatively average risk as its stock’s beta is not above or below one. Therefore,
Apple’s stock price is neither low nor high and this means that the company’s stock is in between.
As a result of having an average beta, Apple’s stock price is expected to move with the market. If
the market price rises, the company’s stock price is also likely to rise with the same proportion as
that of the market price. Therefore, if the market price increases by 10, the company’s stock price
would increase by 10%. Using the company’s current data, which shows that its stock has a beta
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of 1, then its stock is considered to have a risk that is in between as it is averagely volatile when
there are changes in the market price.
Stock Price Movements
Further looking at the Apple’s stock price movement in the last one year, its trend seems
quite unpredictable as the price was on an increasing zig-zag pattern until the 11th of February
2020 when it started decreasing only to start another rising zig-zag pattern on the 23rd of March
2020. Further, it was not until 9 July 2020 when the highest stock price of 382.7300 was
recorded. In contrast, Apple’s lowest stock price in the last year was recorded on 5 August 2019,
where it was 193.3400 (Nasdaq, 2020). Looking at the five-year pattern, the company’s lowest
recorded stock price was 90.5200 on 13 May 2016. On the other hand, the highest stock price
that has been recorded still stands at 382.7300 on 9 July 2020 (Nasdaq, 2020). Therefore, based
on this information, Apple’s stock seems risky as its price has been in an increasing and
decreasing zig-zag pattern over the last five years. Even though the current stock price is quite
promising and there has been an upward trend since the 23rd of March 2020, it is expected that it
will start to decline in the future, making it risky to invest.
Comparison with Competitors
Looking at close competitors of Apple Inc., in the computer software industry, such as
HP, Microsoft and Google, Apple’s beta is the highest in the last 60 months. While Apple has a
beta of 1.18 in the last 60 months, HP, on the other hand, has a beta of 0.98, 0.93 for Microsoft
and 1.06 for Google. While Apple had a Price percentage change of +0.46% while that of HP
was +2.62%, -0.94% for Microsoft and -0.08% for Google. In terms of the Price/Earnings ttm,
Apple had a Price/Earnings ttm of 29.93, 8.28 for HP, 37.60 for Microsoft and 30.50 for Google
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(Google Finance, 2020). Based on Beta, Apple stock is the riskiest to invest, followed by
Google, HP and finally Microsoft. However, as for the percentage change in the stock price,
Microsoft was the riskiest, followed by Apple, Google and then HP. Finally, in terms of the
Price/Earnings ttm, Microsoft is the least risky, followed by Google, Apple and then HP. Based
on these measures, I would consider investing in a competitor like Microsoft as its beta,
Price/Earnings ttm and the percentage change in the stock price show that the company is less
risky than Apple Inc. Conclusively, I would consider an investment at Microsoft less risky and a
better investment than Apple Inc.
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References
Google Finance. (2020, July 10). NASDAQ: AAPL – Google search. Google.
https://www.google.com/search?tbm=fin&sxsrf=ALeKk02Zsx38pcsJSXeYcyaGpruBd8
N0wg_1594397243414&q=NASDAQ:+AAPL&stick=H4sIAAAAAAAAAONgecRoyi3
w8sc9YSmdSWtOXmNU4-IKzsgvd80rySypFJLgYoOyKR4uLj0c_UNzKtyk8rSeBax8vg5Brs4BlopODoGAAAo_3cUkkAAAA&sa=X&ved=2ahUKEwii3sjKiMPqAhX5DWMBHUyMBhQQlq4
Ce
Nasdaq. (2020, July 9). Apple Inc. Common stock (AAPL) historical data. AAPL Historical Data.
https://www.nasdaq.com/market-activity/stocks/aapl/historical
Zhang, Q. (2018). Research on Apple Inc’s current developing conditions. Open Journal of
Business and Management, 06(01), 39-46.

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