06300728 - Stock Valuation

This course provides a comprehensive exploration of stock valuation methods and the risk-return relationship in capital markets. Part 1 introduces stock basics, trading mechanics, and delves into the Dividend-Discount Model. Part 2 revisits stock valuation through the Discounted Free Cash Flow Model, comparative firm analysis, and discusses market influences and trading biases. Part 3 explores historical risks and returns of stocks, differentiating between common and independent risks, and concludes with diversification strategies in stock portfolios. Ideal for those seeking to make informed investment decisions through a deeper understanding of stock valuation and risk assessment.

Estimation of private study (outside of contact hours): 8 hours

DIMENSION OF SOCIAL RESPONSIBILITY

Informal discussion of valuing intangibles like ESG criteria of companies.

TARGETED KNOWLEDGE AND SKILLS 
 

• Mastery of stock basics and trading mechanics
• Proficiency in Dividend-Discount and Free Cash Flow valuation models
• Ability to estimate dividends and assess model limitations
• Understanding of share repurchases and comparable firm analysis
• Insight into market influences, competition, and trading biases
• Comprehension of historical stock risks and returns
• Familiarity with risk-return trade-offs in capital markets
• Skill in differentiating common and independent risks
• Expertise in crafting diversified stock portfolios to mitigate risk

COURSE OUTLINE

1.    General Stock valuation
1.1.    Stock Basics
1.2.    The Mechanics of Stock Trades
1.3.    The Dividend-Discount Model
1.4.    Estimating Dividends in the Dividend-Discount Model
1.5.    Limitations of the Dividend-Discount Model
1.6.    Share Repurchases and the Total Payout Model
1.7.    Putting It All Together

2.    A second look at stock valuation
2.1.    The Discounted Free Cash Flow Model
2.2.    Valuation Based on Comparable Firms
2.3.    Stock Valuation Techniques: A Final Word
2.4.    Information, Competition, and Stock Prices
2.5.    Individual Biases and Trading

3.    Risk and Return in Capital Markets
3.1.    A First Look at Risk and Return
3.2.    Historical Risks and Returns of Stocks
3.3.    The Historical Tradeoff Between Risk and Return
3.4.    Common Versus Independent Risk 
3.5.    Diversification in Stock Portfolios

PRESCRIBED TEXTS AND PUBLICATIONS
 

• Berk, J., DeMarzo, P., Harford, J., Ford, G., Mollica, V., & Finch, N. (2013). Fundamentals of corporate finance. Pearson Higher Education AU. Chapers 7, 10 and 11

RECOMMENDED TEXTS AND PUBLICATIONS
 

• Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset (Vol. 666). John Wiley & Sons.
• Damodaran, A. (2016). Damodaran on valuation: security analysis for investment and corporate finance. John Wiley & Sons.

EMBLEMATIC BOOKS OR RESEARCH PAPERS REGARDING THE SUBJECT OF THE COURSE
 

• Damodaran, A. (2007). Valuation approaches and metrics: a survey of the theory and evidence. Foundations and Trends in Finance, 1(8), 693-784.

TEXTS AND PUBLICATIONS OF IAELYON FACULTY ON THE SUBJECT OF THE COURSE  
 

• Balume, F., Gajewski, J. F., & Heimann, M. (2023, June). Managerial Preferences in Financial Distress: The Role of Cognitive Load and Social Value Orientation in Restructuring Decisions. In Financial Engineering and Banking Society (FEBS).
• Chastenet, E., & Jeannin, G. (2007). Evaluation d'entreprise: quelles sont les méthodes réellement appliquées par les analystes financiers? (No. halshs-00753173).

Assessment type: Written 
Length: 1h
Nature of the assessment: MCQ + exercises


Other grade(s)
Written Test: No
Grading during class in a group
Length: 20 min per group
Nature of assessment: Presentation

Weight: 50/50

TEACHING METHODS
A mixture of lectures, discussions and exercises.

NATURE OF MATERIALS
Presentations, exercises, out of class readings

TEACHING INNOVATIONS AND USE OF TECHNOLOGY
Online searches, videos and excel files

PRE-REQUISITES IN TERMS OF KNOWLEDGE AND SKILLS
General knowledge in accounting and financial calculus is helpful. However, students can ask for materials to catch up outside of class.

RESOURCES AVAILABLE
Lecture slides, excel sheets and exercises.