Using DDM and FCFF to Evaluate Stocks’ Value: Take HP as an Example

DOI

10.2991/978-94-6463-542-3_58How to use a DOI?

Keywords

Equity Investment; Discounted Dividend Model; Free Cash Flow to Firm Method

Abstract

With the fast development of the global economy, the investment market has become one of the most important markets in the world. Among various investment products, equity investment stands out because of its high profitability and risks. For investors who want to earn profits from the stocks, estimating the actual value of a company’s shares and lowering the risk of uncertainty is necessary. This research presents two models to asses investors’ target companies. To show the calculations, this research takes Hewlett-Packard as an example and collects data from related websites. The discounted dividend model assumes an indefinite term of the company’s constantly growing dividend payment and discounts the predicted dividends to work out the present stock price. The free cash flow to firm model takes the data in the company’s financial reports and estimates its growing free cash flow, which will be discounted to calculate its present value. The two models indicate that Hewlett-Packard’s value is underestimated, suggesting investors take an optimistic attitude. The limitations of the models, such as strict assumptions and investors’ subjectivity, should also be noted because they may make the results inadequate. Further research can be made to optimise the two evaluating models.

Copyright

© 2024 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Yutong Chen
PY  - 2024
DA  - 2024/10/15
TI  - Using DDM and FCFF to Evaluate Stocks’ Value: Take HP as an Example
BT  - Proceedings of the 2024 2nd International Conference on Management Innovation and Economy Development (MIED 2024)
PB  - Atlantis Press
SP  - 501
EP  - 508
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-542-3_58
DO  - 10.2991/978-94-6463-542-3_58
ID  - Chen2024
ER  -