CHAPTER 8

Stocks and Their Valuation

 Features of common stock Saham Biasa

 Determining common stock values
 Efficient markets
 Preferred stock

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Facts about common stock
 Represents ownership
 Saham Biasa, pemilik saham sebagai pemilik

 Ownership implies control

 Stockholders elect directors
 Directors elect management
 Management’s goal: Maximize the
stock price

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Social/Ethical Question
 Should management be equally concerned
about employees, customers, suppliers,
and “the public,” or just the stockholders?
 In an enterprise economy, management
should work for stockholders subject to
constraints (environmental, fair hiring,
etc.) and competition.

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Types of stock market
transactions Model saham
 Secondary market
 Misalkan perusahaannya adalah PT. tertutup, mau melakukan ekspansi, tentu butuh dana. Dana diperoleh dengan menerbitkan
saham .
 Uang tidak masuk ke Perusahaan tapi ke Broker

 Primary market
 Menjual kpd masyarakat melalui penjamin emisi/broker itulah yang disebut PASAR PRIMER. (Primary Market)
 Saham didaftarkan oleh Perusahaan di Pasar Modal/Bursa Efek
 Uang masuk langsung ke Perusahaan
 Initial public offering market (“going public”) Go Publik adalah pertama sekali dijual kepada masyarakat.
 IPO= Initial Public Offering

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8-5
 PENDEKATAN DALAM PENILAIAN SEKURITAS

 The fundamental approach.

Dalam mengestimasi nilai sekuritas, analis
memperhatikan kondisi ekonomi, industri dan perusahaan. Harga saham
menggambarkan nilai intrinsik, nilai berdasarkan kemampuan perusahaan
di masa depan, atau disebut present value atau economic value estimates
Dengan membandingkan Nilai Intrinstik dengan Nilai Pasar
menentukan kapan kapan mau Beli dan kapan Jual.
Kl kita memiliki saham untuk selama-lamanya, maka yang diharapkan hanya
DEVIDEN, dan tidak mendapat CAPITAL GAIN. Dalam hal ini tidak
berlaku nilai waktu uang, yang berlaku adalah Nilai
INTRINSTIK/NILAI TERORITIS.

 The technical approach,

memusatkan perhatian pada charts harga sekuritas, lebih menekankan pada
perilaku harga saham, volume perdagangan serta c apital gain (Keuntungan
modal). Trend harga saham akan terjadi secara berulang dan mengabaikan nilai
intrinsic
Dengan membuat Chart berdasarkan waktu sehingga dapat menentukan
kapan beli dan kapan jual berdasarkan chart tersebut.

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Different approaches for
valuing common stock
 Dividend growth model
 Model Pertumbuhan deviden.
 Bisa pertumbuhan Konstan dan tidak konstan
 Corporate value model

 Using the multiples of comparable

firms
 Menilai perusahaan yang blm go publik dpt kita
bandingkan dengan perusahaan lain

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 Dividend growth model
 Value of a stock is the present value of the future dividends
expected to be generated by the stock.

D= Deviden (D1=Deviden Tahun pertama, dst )
 Ks= Diskonto
 P= Nilai penjumlahan ini yang disebut Nilai Intrinstik

 Nilai saham adalah Nilai sekarang dari deviden yang

diperkirakan/diharapkan diterima, dimasa depan. (Konsep nilai
Uang)

^ D1 D2 D3 D
P0  1
 2
 3
 ...  
(1  k s ) (1  k s ) (1  k s ) (1  k s )
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Constant growth stock
 A stock whose dividends are expected to
grow forever at a constant rate, g.
(g=pertumbuhan; Ks= Tingkat Diskonto/Imbal hasil yang
diserapkan/timbal hasil minimum. P= Nilai intrinstik)

D1 = D0 (1+g)1
D2 = D0 (1+g)2
Dt = D0 (1+g)t
 If g is constant, the dividend growth formula
converges to:
^ D 0 (1  g) D1
P0  
ks - g ks - g
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 Future dividends and their
present values
$ D t  D0 ( 1  g ) t

Dt
0.25 PVD t  t
(1  k )

P0   PVD t

0 Years (t)
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What happens if g > ks?
 If g > ks, the constant growth formula
leads to a negative stock price, which
does not make sense.
 The constant growth model can only be
used if:
 ks > g
 g is expected to be constant forever

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 If kRF = 7%, kM = 12%, and β = 1.2,
what is the required rate of return on
the firm’s stock?
 Use the SML to calculate the required

rate of return (ks):

 SML = semakin tinggi resiko semakin tinggi hasil
yang diharapkan
 kRF =imbal hasil tanpa resiko
 kM = Imbal hasil Pasar
ks = kRF + (kM – kRF)β
= 7% + (12% - 7%)1.2
= 13%
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 If D0 = $2 and g is a constant 6%,
find the expected dividend stream for
the next 3 years, and their PVs.

0 1 2 3
g = 6%

D0 = 2.00 2.12 2.247 2.382

1.8761
ks = 13%
1.7599
1.6509

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What is the stock’s market value?
 Using the constant growth model:

D1 $2.12
P0  
k s - g 0.13 - 0.06
$2.12

0.07
 $30.29

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What is the expected market price
of the stock, one year from now?
 D1 will have been paid out already. So,
P1 is the present value (as of year 1) of
D2, D3, D4, etc.
^
D2 $2.247
P1  
k s - g 0.13 - 0.06
 $32.10

 Could also
^
find expected P1 as:
P1  P0 (1.06)  $32.10
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What is the expected dividend yield,
capital gains yield, and total return
during the first year?
 Dividend yield
= D1 / P0 = $2.12 / $30.29 = 7.0%
 Capital gains yield
= (P1 – P0) / P0
= ($32.10 - $30.29) / $30.29 = 6.0%
 Total return (ks)
= Dividend Yield + Capital Gains Yield
= 7.0% + 6.0% = 13.0%
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What would the expected price
today be, if g = 0?
 The dividend stream would be a
perpetuity.

0 1 2 3
ks = 13%
...
2.00 2.00 2.00
^ PMT $2.00
P0    $15.38
k 0.13

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Supernormal growth:
What if g = 30% for 3 years before
achieving long-run growth of 6%?
 Can no longer use just the constant growth
model to find stock value.
 However, the growth does become
constant after 3 years.

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 Valuing common stock with
nonconstant growth
(Penilaian Saham dengan tingkat pertumbuhan non-konstan)

0 k = 13% 1 2 3 4
s
...
g = 30% g = 30% g = 30% g = 6%
D0 = 2.00 2.600 3.380 4.394 4.658
2.301
2.647
3.045
4.658
46.114 P 3   $66.54
^ 0.13  0.06
54.107 = P0
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Find expected dividend and capital gains
yields during the first and fourth years.
 Dividend yield (first year)
= $2.60 / $54.11 = 4.81%
 Capital gains yield (first year)
= 13.00% - 4.81% = 8.19%
 During nonconstant growth, dividend yield
and capital gains yield are not constant,
and capital gains yield ≠ g.
 After t = 3, the stock has constant growth
and dividend yield = 7%, while capital
gains yield = 6%.
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 Nonconstant growth:
What if g = 0% for 3 years before long-
run growth of 6%?

0 k = 13% 1 2 3 4
s
...
g = 0% g = 0% g = 0% g = 6%
D0 = 2.00 2.00 2.00 2.00 2.12
1.77
1.57
1.39
2.12
20.99 P 3   $30.29
^ 0.13  0.06
25.72 = P0
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Find expected dividend and capital gains
yields during the first and fourth years.
 Dividend yield (first year)
= $2.00 / $25.72 = 7.78%
 Capital gains yield (first year)
= 13.00% - 7.78% = 5.22%
 After t = 3, the stock has constant
growth and dividend yield = 7%,
while capital gains yield = 6%.

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If the stock was expected to have
negative growth (g = -6%), would anyone
buy the stock, and what is its value?
 The firm still has earnings and pays
dividends, even though they may be
declining, they still have value.

^ D1 D0 ( 1  g )
P0  
ks - g ks - g
$2.00 (0.94) $1.88
   $9.89
0.13 - (-0.06) 0.19

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Find expected annual dividend and
capital gains yields.
 Capital gains yield
= g = -6.00%
 Dividend yield
= 13.00% - (-6.00%) = 19.00%

 Since the stock is experiencing constant

growth, dividend yield and capital gains
yield are constant. Dividend yield is
sufficiently large (19%) to offset a negative
capital gains.
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Constant Growth Stock Valuation Fletcher Company’s
Current Stock Price Is $36.00, Its Last Dividend Was
$2.40, And Its Required Rate Of Return Is 12%. If
Dividends Are Expected To Grow At A Constant Rate,
G, In The Future And If Ks Is Expected To Remain At
12%,
What Is Fletcher’s Expected Stock Price 5 Years
From Now?

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Nonconstant Growth Stock Valuation Snyder
Computers Inc. Is Experiencing Rapid Growth.
Earnings And Dividends Are Expected To Grow At A
Rate Of 15% During The Next 2 Years, At 13% The
Following Year, And At A Constant Rate Of 6% During
Year 4 And Thereafter. Its Last Dividend Was $1.15,
And Its Required Rate Of Return Is 12%.
1.Calculate The Value Of The Stock Today.
2.Calculate ^P1 And ^P2.
3.Calculate The Dividend And Capital Gains Yields
For Years 1, 2, And 3.

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9-1 DPS Calculation Warr Corporation Just Paid A Dividend Of
$1.50 A Share (That Is, D0 = $1.50). The Dividend Is Expected To
Grow 7% A Year For The Next 3 Years And Then At 5% A Year
Thereafter. What Is The Expected Dividend Per Share For Each Of
The Next 5 Years?
9-2 Constant Growth Valuation Thomas Brothers Is Expected To
Pay A $0.50 Per Share Dividend At The End Of The Year (That Is,
D1 = $0.50). The Dividend Is Expected To Grow At A Constant
Rate Of 7% A Year. The Required Rate Of Return On The Stock,
Ks, Is 15%. What Is The Stock’s Current Value Per Share?

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9-3 Constant Growth Valuation Harrison Clothiers’ Stock Currently
Sells For $20.00 A Share. It Just Paid A Dividend Of $1.00 A Share
(That Is, D0 = $1.00). The Dividend Is Expected To Grow At A
Constant Rate Of 6% A Year. What Stock Price Is Expected 1 Year
From Now? What Is The Required Rate Of Return?

9-4 Nonconstant Growth Valuation Hart Enterprises Recently Paid

A Dividend, D0, Of $1.25. It Expects To Have Nonconstant Growth
Of 20% For 2 Years Followed By A Constant Rate Of 5% Thereafter.
The Firm’s Required Return Is 10%.
A. How Far Away Is The Terminal, Or Horizon, Date?
B. What Is The Firm’s Horizon, Or Terminal, Value?

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Corporate value model
 Also called the free cash flow method.
Suggests the value of the entire firm
equals the present value of the firm’s
free cash flows.
 Remember, free cash flow is the firm’s
after-tax operating income less the net
capital investment
 FCF = NOPAT – Net capital investment
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 Applying the corporate value model
 Find the market value (MV) of the firm.
 Find PV of firm’s future FCFs
 Subtract MV of firm’s debt and preferred stock to
get MV of common stock.
 MV of = MV of – MV of debt and
common stock firm preferred
 Divide MV of common stock by the number of
shares outstanding to get intrinsic stock price
(value).
 P0 = MV of common stock / # of shares
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Issues regarding the
corporate value model
 Often preferred to the dividend growth
model, especially when considering number
of firms that don’t pay dividends or when
dividends are hard to forecast.
 Similar to dividend growth model, assumes at
some point free cash flow will grow at a
constant rate.
 Terminal value (TVn) represents value of firm
at the point that growth becomes constant.
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 Given the long-run gFCF = 6%, and
WACC of 10%, use the corporate value
model to find the firm’s intrinsic value.

0 k = 10% 1 2 3 4
...
g = 6%
-5 10 20 21.20
-4.545
8.264
15.026 21.20
398.197 530 = = TV3
0.10 - 0.06
416.942

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If the firm has $40 million in debt and
has 10 million shares of stock, what is
the firm’s intrinsic value per share?
 MV of equity = MV of firm – MV of debt
= $416.94m - $40m
= $376.94 million
 Value per share = MV of equity / # of
shares
= $376.94m / 10m
= $37.69

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Corporate Valuation Smith Technologies Is Expected To
Generate $150 Million In Free Cash Flow Next Year,
And FCF Is Expected To Grow At A Constant Rate Of
5% Per Year Indefinitely. Smith Has No Debt Or
Preferred Stock, And Its WACC Is 10%. If Smith Has 50
Million Shares Of Stock Outstanding, What Is The
Stock’s Value Per Share?

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Corporate valuation dozier corporation is a fast-growing supplier of
office products. Analysts project the following free cash flows (fcfs)
during the next 3 years, after which FCF is expected to grow at a
constant 7% rate. Dozier’s WACC is 13%.

YEAR 0 1 2 3
FCF ($ MILLIONS) NA - $20 $30 $40

A.What Is Dozier’s Terminal, Or Horizon, Value? (Hint: Find The

Value Of All Free Cash Flows Beyond Year 3 Discounted Back To
Year 3.)
B.What Is The Firm’s Value Today?

C.Suppose Dozier Has $100 Million Of Debt And 10 Million Shares

Of Stock Outstanding. What Is Your Estimate Of The Current Price

Per Share?

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Firm multiples method
 Analysts often use the following multiples
to value stocks.
 P/E
 P / CF
 P / Sales
 EXAMPLE: Based on comparable firms,
estimate the appropriate P/E. Multiply this
by expected earnings to back out an
estimate of the stock price.
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What is market equilibrium?
 In equilibrium, stock prices are stable and
there is no general tendency for people to
buy versus to sell.
 In equilibrium, expected returns must equal
required returns.
^
D1
ks  g  k s  k RF  (k M  k RF )
P0

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Market equilibrium
 Expected returns are obtained by
estimating dividends and expected
capital gains.
 Required returns are obtained by
estimating risk and applying the CAPM.

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How is market equilibrium
established?
 If expected return exceeds required
return …
 The current price (P0) is “too low” and
offers a bargain.
 Buy orders will be greater than sell
orders.
 P0 will be bid up until expected return
equals required return
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Factors that affect stock price
 Required return (ks) could change
 Changing inflation could cause kRF to
change
 Market risk premium or exposure to
market risk (β) could change
 Growth rate (g) could change
 Due to economic (market) conditions
 Due to firm conditions
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What is the Efficient Market
Hypothesis (EMH)?
 Securities are normally in equilibrium
and are “fairly priced.”
 Investors cannot “beat the market”
except through good luck or better
information.
 Levels of market efficiency
 Weak-form efficiency
 Semistrong-form efficiency
 Strong-form efficiency
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Weak-form efficiency
 Can’t profit by looking at past trends.
A recent decline is no reason to think
stocks will go up (or down) in the
future.
 Evidence supports weak-form EMH,
but “technical analysis” is still used.

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Semistrong-form efficiency
 All publicly available information is
reflected in stock prices, so it doesn’t
pay to over analyze annual reports
looking for undervalued stocks.
 Largely true, but superior analysts
can still profit by finding and using
new information

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Strong-form efficiency
 All information, even inside
information, is embedded in stock
prices.
 Not true--insiders can gain by
trading on the basis of insider
information, but that’s illegal.

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Is the stock market efficient?
 Empirical studies have been conducted to
test the three forms of efficiency. Most of
which suggest the stock market was:
 Highly efficient in the weak form.
 Reasonably efficient in the semistrong form.
 Not efficient in the strong form. Insiders could
and did make abnormal (and sometimes
illegal) profits.
 Behavioral finance – incorporates elements
of cognitive psychology to better
understand how individuals and markets
respond to different situations.
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Preferred stock
 Hybrid security
 Like bonds, preferred stockholders
receive a fixed dividend that must be
paid before dividends are paid to
common stockholders.
 However, companies can omit
preferred dividend payments without
fear of pushing the firm into
bankruptcy.
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If preferred stock with an annual
dividend of $5 sells for $50, what is the
preferred stock’s expected return?

Vp = D / kp
$50 = $5 / kp

kp = $5 / $50
= 0.10 = 10%

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8-48
 PROSPEK PASAR MODAL

Dengan melihat potensi dari sudut permintaan dan penawaran terhadap efek,
pengelolaan bursa efek, lembaga-lembaga terkait, kekuatan ekonomi nasional,
dan stabilitas politik nasional maka dimungkinkan pasar modal dapat menjalankan
fungsinya sebagai sumber pembiayaan pembangunan dan media investasi yang
semakin sangat penting di masa depan

Sudut penawaran (jumlah perusahaan PMA dan PMDN) ?

Sudut perminaan (investor individu dan investor institusi) ? Investor institusi

(Perusahaan asuransi) ?

Pengelolaan bursa ? Full disclosure ?

Lembaga terkait ? Akuntan publik, Penjamin emisi, konsultan hukum, pialang ?

Profesional, independen, memberikan informasi yang lengkap, akurat, relevan

Pertumbuhan ekonomi ?

Stabilitas politik ?
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