Concept explainers
Estimating Exxon Mobil Corporation's Intrinsic Stock Value
Use online resources to work on this chapter's questions. Please note that website information changes over time, and these changes may limit your ability to answer some of these questions.
In this chapter, we described the various factors that influence stock prices and the approaches that analysts use to estimate a stock's intrinsic value. By comparing these intrinsic value estimates to the current price, an investor can assess whether it makes sense to buy or sell a particular stock. Stocks trading at a price far below their estimated intrinsic values may be good candidates for purchase, whereas stocks trading at prices for in excess of their intrinsic value may be good stocks to avoid or sell. Although estimating a stock's intrinsic value is a complex exercise that requires reliable data and good judgment, we can use the Internet to find financial data in order to arrive at a quick "back-of-the- envelope" calculation of intrinsic value.
1. For purposes of this exercise, let's take a closer look at the stuck of Exxon Mobil Corporation (XOM). Use websites such as Yahoo! Finance, Google Finance, MSN Money (www.msn.com/en-us/
Previous Close | 73.60 |
Open | 74.35 |
Bid | 74.25 X 100 |
Ask | 74.60 X 500 |
Day's Range | 74.10-75.00 |
52 Week Range | 73.53 - 89.30 |
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Fundamentals of Financial Management (MindTap Course List)
- Estimating Exxon Mobil Corporation's Intrinsic Stock Value Use online resources to work on this chapter's questions. Please note that website information changes over time, and these changes may limit your ability to answer some of these questions. In this chapter, we described the various factors that influence stock prices and the approaches that analysts use to estimate a stocks intrinsic value. By comparing these intrinsic value estimates to the current price, an investor can assess whether it makes sense to buy or sell a particular stock. Stocks trading at a price far below their estimated intrinsic values may be good candidates for purchase, whereas stocks trading at prices far in excess of their intrinsic value may be good stocks to avoid or sell Although estimating a stock's intrinsic value is a complex exercise that requires reliable data and good judgment, we can use the Internet to find financial data in order to arrive at a quick "back-of-the- envelope" calculation of intrinsic value. 5. To put the firm's current P/E ratio in perspective, it is useful to compare this ratio with that of other companies in the same industry. To see how XOMs P/E ratio stacks up to its peers, refer to Google Finance's Related Companies screen. (If you click "Add or remove columns, you will find that you can obtain comparisons of a number of key statistics for either the most recent year or quarter) For the most part, is XOM's P/E ratio above or below that of its peers? In Chapter -4, we discussed the various factors that may influence P/E ratios Can any of these factors explain why XOM's P/E ratio differs from its peers? Explain.arrow_forwardUsing Past Information to Estimate Required Returns Use online resources to work on this chapter's questions. Please note that website information changes over time, and these changes may limit your ability to answer some of these questions. Chapter 8 discussed the basic trade-off between risk and return. In the capital asset pricing model (CAPM) discussion, beta was identified as the correct measure of risk for diversified shareholders. Recall that beta measures the extent to which the returns of a given stock move with the stock market. When using the CAPM to estimate required returns, we would like to know how the stock will move with the market in the future, but because we dont have a crystal ball, we generally use historical data to estimate this relationship with beta. As mentioned in Web Appendix 8A, beta can be estimated by regressing the individual stock's returns against the returns of the overall market. As an alternative to running our own regressions, we can rely on reported betas from a variety of sources. These published sources make it easy for us to readily obtain beta estimates for most large publicly traded corporations. However, a word of caution is in order. Beta estimates can often be quite sensitive to the time period in which the data are estimated, the market index used, and the frequency of the data used. Therefore, it is not uncommon to find a wide range of beta estimates among the various Internet websites. 4. Select one of the four stocks listed in question 3 by entering the company's ticker symbol on the financial website you have chosen. On the screen you should see the interactive chart. Select the six-month time period and compare the stock's performance to the SP 500's performance on the graph by adding the SP 500 to the interactive chart. Has the stock outperformed or underperformed the overall market during this time period?arrow_forwardA security analyst wants to analyze the stock of Exide Industries. Comment and analyze the stock on the following parameters: 1) ALTMAN Z Score2) ROCE3) Book Value of unquoted investment4) Market Value of Quoted Investment5) Debt to Profit In order to analyze the stock, screenshot of Exide Industries is attached below:arrow_forward
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