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:
1. 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?
2. 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?
3. 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.
For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. See Trident’s Introduction to APA . Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.
This 2–3 page finance SLP asks you to value the company you chose earlier — using its P/E ratio (vs. industry), balance-sheet data, and other metrics — to judge whether its stock is over- or undervalued. Pull real financial data and interpret it.
Key takeaways
- Find the company’s P/E ratio and compare it to industry peers.
- Interpret P/E: high may mean overvalued (or growth expectations); low may mean undervalued.
- Use balance-sheet and other data to support the judgment.
- Conclude whether the stock is over- or undervalued.
- Use Yahoo/Google Finance and cite.
P/E ratio analysis
Find the company’s price-to-earnings (P/E) ratio from a finance site, and compare it to industry peers and averages. Interpret it: a P/E well above peers can signal overvaluation (or high growth expectations); below peers can signal undervaluation (or problems).
Balance sheet and other metrics
Pull balance-sheet data and other valuation indicators the assignment lists (e.g., debt levels, book value, dividend) and discuss what they add to the picture.
Over- or undervalued?
Synthesize the evidence into a reasoned conclusion about whether the stock appears over- or undervalued, acknowledging the limits of ratio analysis.
Format
2–3 pages, use Yahoo/Google Finance data, and cite your sources.
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