Relative Valuation Research Articles

Housing choice in an evolving remote work landscape

We estimate a joint model of housing choice along several dimensions to account for changing valuations of housing outcomes due to the COVID-19 pandemic. We consider housing outcomes including housing type, tenure type, the presence of a patio or yard, the number of bedrooms, neighborhood population density, median housing cost, accessibility of amenities, school quality, crime rate, and commute distance. Data used for this analysis were collected in October and November of 2021 from 24 metropolitan areas across the United States. A Generalized Heterogeneous Data Model (GHDM) is used to estimate these housing outcomes as a function of exogenous household sociodemographic characteristics and latent lifestyle propensities. The GHDM also captures jointness caused by unobserved factors, allowing for the estimation of accurate causal effects between outcomes. The results reveal that lifestyle preferences have significant impacts on housing outcomes. Specifically, individuals with a preference for teleworking are more likely to reside in single-family homes in highly populated areas, experience longer commute distances, and exhibit a higher sensitivity to the presence of amenities in their neighborhoods. Additionally, the analysis of tradeoffs between housing outcomes reveals the relative valuations of various housing outcomes. An increased commute distance is found to lead to an increase in single-family homes, reductions in density, and an increased crime rate. Choosing an apartment in a high-density neighborhood is found to lead to reductions in school quality and significant increases in crime rates. Implications of the results for land-use planning, travel demand analysis, and equity considerations are identified and discussed.

An Analysis of the Investment Value of Marriott International in Post-pandemic Era

Abstract: The COVID-19 has had a negative impact on the global economy, and the hotel industry has also been impacted. In the post-pandemic era, the hotel industry has entered a recovery phase. Taking Marriott, an internationally renowned hotel, as a case study, this paper uses SWOT analysis, financial analysis and relative valuation methods to study the development situation and investment value of the hotel after the epidemic. The analysis shows that Marriott has a fast recovery speed, strong operational capabilities, and obvious competitive advantages, but it is vulnerable to the negative impact of external environmental turbulence on its own revenue. This paper provides investors with a reference to Marriott's post-pandemic financial health, while suggesting areas for improvement for Marriott hotels.

Market concentration of the Brazilian hospital medical supplementary health system

BackgroundThe Brazilian supplementary health market has undergone transformations in recent years due to constant mergers and acquisitions of by large corporations, contributing to the increase in market concentration, especially in the poorest and least developed regions of the country. Thus, given the care it provides and its economic relevance, understanding the fundamentals of these movements, the likely consequences and trends for the health market are relevant, important, and strategic.ObjectiveTo understand the general and specific context of Brazilian supplementary health, its scenarios, and trends, with emphasis on the analysis of market concentration and recent mergers and acquisitions.MethodologyThe research is applied, descriptive and exploratory and uses secondary data from various sources, submitted to quantitative data analysis methods. The data are organized into three groups: historical and regulatory documents; industry data; and market.ResultsThe results show the growing concentration of the market promoted by large publicly traded corporations, the growing relevance of tech startups on the healthcare landscape, the predominant use of the relative valuation model, with implicit multiples for asset pricing and the prevalence of corporate health plans.ConclusionThe growing concentration of the system projects a market with fewer options and less competitiveness, since the growth of large operators is evident, in addition to the relevant increase in the number of complaints from users of the system, which signals the growing gap between the expectations of users and the levels of quality care offered. The study also highlights the predominance of corporate health plans, revealing the direct relationship between access to supplementary health services and employability rates. The analysis of M&A operations, in addition to the increase in market concentration, reveals the prevalence of the use of the relative valuation model and implicit multiples for the pricing of traded assets. This denotes the future expectation of wealth generation, at least equivalent to the historical series of the sector, on the part of investors, whose frustration may signal the decreasing attractiveness of resources and M&A operations in the sector in the coming years.

The Finance of Cybersecurity: Quantitative Modeling of Investment Decisions and Net Present Value

Despite the growing literature on cybersecurity investment, significant gaps remain unaddressed. First, the existing literature does not differentiate between cybersecurity expenditures, namely investment versus spending, despite the differences in their financial treatments. Second, the literature predominantly employs economic and risk-based models, in which the incorporation of financial parameters is limited. Third, the literature focuses on quantifying market (stock) loss of cyberattacks or conducting a cost-benefit analysis of cybersecurity investments but has yet to bridge these two areas. Thus, our objective is to introduce a new financial model, the Alpha Model, that addresses these gaps. We first provide distinctions between cybersecurity investment (capital expenditure) and spending (operational expenditure). Grounded in Relative Valuation Models and Optimal Capital Structure Theory, we quantify the upper-bound of optimal cybersecurity investment by utilizing book and market values of equity and debt. We also demonstrate that the Net Present Values (NPV) of cybersecurity investment is considerably lower than its book value by incorporating financial parameters of equity and debt financing, inflation-adjusted capital cost, and tax credits of depreciation and interest. To validate our model, we empirically test it by using data from the S&P500 index during 2018–2023. We offer practical implications to key stakeholders, including: (1) industry executives to financially quantify cybersecurity investments and ascertain their actual NPVs, individually and collaboratively with supply chain partners; (2) cybersecurity solution providers to promote business investments in cybersecurity; and (3) insurance providers to price premiums with higher NPVs than the corresponding investments. We also offer several avenues for further research.

Misconceptions about the valuation of ecosystem services

The concept of ecosystem services – the benefits humans derive from functioning ecosystems – has been around for at least 4 decades. Attempts to value those services in monetary and other units have been around for just as long. However, several misconceptions have sprung up about ecosystem services, and especially the valuation of those services in monetary units, that are counterproductive to further dialogue, research, and solutions. This paper attempts to address some of those misconceptions, including showing that: (1) ecosystem services is not an anthropocentric concept; (2) economics is not only the market; (3) valuation is not commodification or privatization; (4) expressing relative values in monetary units is not necessarily ‘market-based’; (5) in a world of trade-offs, whether to perform a valuation is not a choice since it happens implicitly; (6) ‘intrinsic values’ are about rights, not relative valuation; and (7) relative valuation and rights-based approaches are complimentary not mutually exclusive. I address each of these misconceptions in turn and end with a plea for constructive dialogue on these important issues, not continuing unproductive debate founded on fundamental misconceptions.

Corporate Value Assessment based on the EVA Model and Relative Valuation

As a risk-averse commodity, gold has seen new development opportunities in retail due to factors (e.g., geopolitical risks and conflicts, economic uncertainties, and inflation). Consequently, more and more investors are focusing on the gold retail industry. Evaluating the value of gold retail enterprises using scientific and effective methods is of great significance to both managers and investors. Therefore, this paper uses Chow Tai Seng, a Chinese gold retail enterprise, as a case study. Based on the company's development characteristics, we employ the EVA absolute valuation method and relative valuation methods including P/E, P/B and P/S ratios for valuation. The study finds that although its EVA values show a general downward trend from 2019 to 2023, they remain positive, indicating that the company's overall development is still on track. The development of enterprise valuation theory has gone through the MM (Modigliani-Miller) theory, Free Cash Flow Valuation Model, and the Capital Asset Pricing Model, among others. These theoretical models have gradually improved, and the theoretical system is continuously evolving. By summarizing and reviewing valuation theories and methods, this paper employs the DDM for valuation and the P/E ratio method under relative valuation based on the company's development characteristics. Combining these two valuation methods with the company's actual financial data and relevant value theories, the company can attract investors and address undervaluation by increasing its exposure through modern multimedia channels and enhancing data transparency.

Accuracy of Relative Valuation Methods in Predicting the Offer Price of Indonesian IPO Stocks

The increasing Initial Public Offerings (IPO) trend in Indonesia has created many investment opportunities for institutional and retail investors. However, multiple valuation methods often result in varying IPO price predictions, leading to uncertainty and confusion among investors. This study aims to assess the effectiveness of relative valuation methods in predicting IPO offer prices, focusing on widely adopted methods due to their simplicity and accessibility. The research evaluates three popular relative valuation metrics: the price-to-book (P/B) ratio, the price-to-earnings (P/E) ratio, and the price-to-sales (P/S) ratio. By analyzing companies that went public in Indonesia in 2023 and utilizing average financial ratios from the preceding year, the study seeks to determine which method provides the most accurate price predictions. The findings indicate that the P/B ratio is the most reliable method, achieving an average absolute error of 51.1%. This suggests that the P/B method minimizes valuation errors more effectively than P/E and P/S ratios. Moreover, regression models' P/B ratio demonstrates the highest adjusted R² value of 0.781, further validating its predictive accuracy. The implications of this study are significant for investors and financial analysts who rely on relative valuation methods to make informed decisions about IPO investments. By highlighting the P/B ratio's superior performance in predicting IPO offer prices, this research contributes to the ongoing discourse on valuation methodologies and their practical application in emerging markets like Indonesia.

Valuation of CATL Based on FCFF, Residual Income and Relative Valuation Model

Valuation of CATL Based on FCFF, Residual Income and Relative Valuation Model

The Pandemic and Counterurbanization: A Comparison of Sweden and Slovenia

Based on the concept of teleworkability, its sluggish determinants of industry structure and workplace culture, and the change in people’s valuation of rural amenities that happened during the pandemic, this paper analyzes their possible influence on counterurbanization during the pandemic in Sweden and Slovenia. We found signs of open (migration) as well as “hidden” counterurbanization (unregistered rural living) in both countries, stronger in Sweden than in Slovenia, and we found indications that industrial structure and national workplace cultures contributed to differences in the strength of the counterurbanization. In both countries, we found indications that the pandemic contributed to a shift in people’s relative valuation of rural vs. urban amenities. Thus, while the sluggish factors contributed to differences in teleworkability between Sweden and Slovenia, the chock implied similar reactions in the shift of the valuation of amenities. Ever since the counterurbanization of the 1970s, studies of the phenomenon have almost solely been completed within countries, and the few international comparisons that have been completed have been based on comparing the results of the national studies. This study is one of the very first ones that compares counterurbanization and its driving forces in two countries within the same analytical framework.

Stock Valuation of PT. Panca Budi Idaman, Tbk. (PBID) based on Free Cash Flow to the Firm and on Relative Valuation

The stock valuation of PT Panca Budi Idaman, Tbk. (PBID), an Indonesian plastic packaging manufacturer, is evaluated using the absolute and relative valuation. The absolute valuation is based on Discounted Cash Flow (DCF) method. In relative valuation, PBID is compared to its peers, which in this study are IPOL, PDPP, and TRST. Indonesia’s significant economic growth and the vital role of the plastic industry are noting strong demand for plastic packaging despite environmental challenges and regulatory pressures. Financial performance from 2017 to 2023 is assessed through profitability, liquidity, and solvency ratios, demonstrating PBID’s efficient operations and robust financial health. Future cash flows are projected, discounted using PBID’s Weighted Average Cost of Capital (WACC), and the terminal value is calculated. The intrinsic value is estimated at IDR 3,987 per share, indicating undervaluation compared to the current price of IDR 1,325 per share. Relative valuation compares PBID to industry peers using EV/EBITDA, P/E, and P/B ratios, reinforcing the undervaluation finding. Investment recommendations suggest PBID’s stock as a buying opportunity due to its strong market position and favourable valuation metrics.

Stock valuation before and after the COVID-19 pandemic: Free Cash Flow to Firm (FCFF) and relative valuation approach with Discounted Cash Flow (DCF) valuation method

Stock valuation before and after the COVID-19 pandemic: Free Cash Flow to Firm (FCFF) and relative valuation approach with Discounted Cash Flow (DCF) valuation method

Stock Valuation of PT. Bank ABC Tbk.

PT Bank ABC Tbk aspires to be one of the top 10 global sharia banks in 2025 in terms of market capitalization. As of December 2023, PT. Bank ABC Tbk ranks 13 with 5,18 billion USD in market capitalization. This research aims to examine PT. Bank ABC Tbk stock by using Discounted Cash Flow (DCF) through Free Cash Flow to Equity (FCFE), and Relative Valuation method through the Price to Book Value (PBV), and to determine whether the stock is undervalued or overvalued. According to Free Cash Flow to Equity (FCFE) valuation result, the intrinsic value per share of PT. Bank ABC Tbk is Rp 37.497 per share, while its share price as of 31 December 2023, is Rp 1.740, indicating that the stock of PT. Bank ABC Tbk is undervalued by the market. This means that the market has not completely recognized the PT. Bank ABC Tbk ‘s ability to generate future cash flows. PT. Bank ABC Tbk’s undervalued stock offers the possibility of returns for the potential investor as the share price rises over time to reflect the intrinsic value per share. The company’s Price to Book Value (PBV) is 2.07, while the PBV of the average of the company’s peers is 2.72. This means PT Bank ABC Tbk is undervalued ie. the share is underpriced compared to the average of its peers. Based on the result, this research recommends to buy the stock of PT. Bank ABC Tbk because it is undervalued based on FCFE and based on PBV.

VALUATION OF STOCK VALUE WITH RELATIVE VALUATION AND ABSOLUTE VALUATION APPROACH IN BANKING SECTOR AT LQ 45 PERIOD 2015-2020

Investment in Indonesia during the COVID-19 pandemic increased. One of the significant and good indices in describing the condition of stocks in Indonesia is LQ45. Dlaam LQ45 The largest market capitalists are held by the financial sector Specifically the bank subsector therefore it needs to be further researched regarding these stocks. One of the interesting things is whether these stocks deserve to be considered a good investment instrument. One of the efforts to assess investment instruments is through the valuation stage. The valuation method used there are two, namely relative valuation with price to book value benchmarks and price earnings ratio and absolute valuation with dividend growth model method and some modifications of the model. From the results obtained, the recommendation of the position of the four financial stocks in LQ45 varies depending on the valuation technique used. On this basis, it can be said that it is important to know, know, and ethically the valuation techniques used are appropriate, good, and correct.

Executive functions and behavioral economic demand for cannabis among young adults: Indirect associations with cannabis consumption and cannabis use disorder.

Behavioral economic demand for cannabis is robustly associated with cannabis consumption and cannabis use disorder (CUD). However, few studies have examined the processes underlying individual differences in the relative valuation of cannabis (i.e., demand). This study examined associations between executive functions and cannabis demand among young adults who use cannabis. We also examined indirect associations of executive functions with cannabis consumption and CUD symptoms through cannabis demand. Young adults (N = 113; 58.4% female; mean age 22 years) completed a Marijuana Purchase Task. Participants also completed cognitive tasks assessing executive functions (set shifting, inhibitory control, working memory) and semistructured interviews assessing past 90-day cannabis consumption (number of grams used) and number of CUD symptoms. Poorer inhibitory control was significantly associated with greater Omax (peak expenditure on cannabis) and greater intensity (cannabis consumption at zero cost). Poorer working memory was significantly associated with lower elasticity (sensitivity of consumption to escalating cost). Lower inhibitory control was indirectly associated with greater cannabis consumption and CUD symptoms through greater Omax and intensity, and poorer working memory was indirectly associated with greater cannabis consumption and CUD symptoms through reduced elasticity. This study provides novel evidence that executive functions are associated with individual differences in cannabis demand. Moreover, these results suggest that cannabis demand could be a mechanism linking poorer executive functioning with heavier cannabis use and CUD, which should be confirmed in future longitudinal studies. (PsycInfo Database Record (c) 2024 APA, all rights reserved).

Firm value and the use of financial derivatives: Evidence from developed countries

AbstractThis paper examines whether financial derivatives usage impacts firm value in seven developed countries from 2007 to 2016. We rely on textual analysis to identify derivatives users and address the potential reverse causality problem through propensity score matching and the difference‐in‐differences approach. Empirical findings suggest that the use of derivatives has a negative effect on firm value. Interestingly, we observe asymmetric valuation effects for specific countries when comparing firms that adopt derivatives with those that abandon them. US, UK, and Australian firms adopting derivatives experience a significant decrease in their valuation. Contrary to expectations, this adverse effect diminishes and may become insignificant at best when firms choose to abandon derivatives. Furthermore, most of the significant value effects disappear when using the industry relative valuation measure.

On the importance of asset pricing factors in the relative valuation

In this study, we examine the implications of multi-factor asset pricing models in corporate valuation, focusing on the relative valuation approach. Our investigation centers around an eight-factor model, which we compare against traditional valuation methods that rely on industry or risk grouping and cross-sectional averages. The purpose of this comparison is to assess the efficacy of incorporating pricing factor variables into the valuation process and to understand their impact on valuation accuracy. The findings of our analysis suggest that the use of the eight-factor model leads to a reduction in estimation errors of valuation multiples, indicating an important improvement in precision compared to conventional valuation methods. Additionally, our research offers insights into the practicality of applying multi-factor models. It contributes to the intersection between empirical asset pricing and corporate finance by providing a detailed evaluation of advanced valuation models and their relevance in improving the accuracy of relative valuation.

Practical Analysis of Stock Market Under ESG

In today's era, climate change brought about by the greenhouse effect is gradually bringing more and more economic losses and natural disasters. In order to mitigate the negative impact of climate change, many countries have jointly formulated a 1.5°C climate scenario, which has brought a lot of impact on the global economy and industry development (Henderson et al., 2020). At the same time, my client commissioned me to build a portfolio that complies with the 1.5°C climate scenario, and the shares must be included in the S&P 500 Net Zero 2050 Climate Transition ESG Index as of 30/09/2022. The total portfolio is $100,000, and the benchmark designates the S&P 500 Net Zero 2050 Climate Transition ESG Index. Because the investment horizon is short and only six weeks, I chose semi-active management in my portfolio management process, and the rebalancing method was selected as percentage rebalancing. Finally, based on macro and industry analysis and relative valuation and technical analysis of the corresponding stocks, I selected ten stocks: Starbucks Corporation, Tesla, Inc., Amgen Inc., Cisco Systems, Inc., Eversource Energy, The Coca-Cola Company, and Expeditors International of Washington, Inc., Trans Digm Group Incorporated， Netflix, Inc., S&P Global Inc. I calculated their respective shares using the Markowitz model and bought and rebalanced, but unfortunately, my portfolio did not work as expected. The sector index fell by 4.87% in the week of the investment term, but my portfolio fell by 7.45% and performed poorly. Among them, the collapse of Tesla due to special events and my previous judgment of Tesla were greatly affected, and although its share price was only 9.94%, its share price fell by 33.74%. Although the late-stage rebalancing gave me hope for the better, the short investment horizon became a significant obstacle to the improvement of my portfolio.

ESG risk rating and company valuation: The case of the Warsaw Stock Exchange

This research investigates whether investors on the Warsaw Stock Exchange are willing to pay a premium to invest in large companies with a relatively more favourable environmental, social and governance (ESG) risk profile. The theory is that lower exposure to ESG risks and better ESG risk management practices are perceived by investors as a signal of potentially lower financial uncertainty and improved ability of companies to grow future earnings. The analysis was conducted for companies included in the mWIG40 and WIG20 indices. The relationship between market ratios reflecting company valuation, such as price to net book value and enterprise value to EBITDA, and their ESG risk ratings was modelled using regression models. Those were estimated using ordinary and generally least squares techniques. Although ESG management practices are still at a relatively early stage of implementation in Central Europe (including Poland), the results of the analysis confirm a strong negative relationship between the severity of ESG risks and the relative valuation of the company, accompanied by the existence of significant valuation differences across industries. Of particular note is the impact of a favourable ESG risk rating on a higher Enterprise Value to EBITDA ratio. This ratio is important because it is very often used as a valuation basis in corporate buy-sell transactions. The research confirms that investors are willing to pay more for companies that have built business models that are less vulnerable to future ESG risks and have a quality management culture. As a result, the research provides evidence that consciously investing in climate risk mitigation and improving corporate governance practices in large companies pays off for shareholders.

Preferences in adolescents and young people’s sexual and reproductive health services in Nigeria: a discrete choice experiment

BackgroundBarriers to utilization of sexual and reproductive health (SRH) services by adolescents and young people (AYP) have persisted despite evidence that youth-friendly services have a positive effect on contraceptive use, and patient knowledge and satisfaction.ObjectiveThe objective of this study was to elicit, and derive relative valuations for, attributes of SRH services that adolescents and young people value, and their willingness to pay for these services, in public health facilities.MethodsA discrete-choice-experiment (DCE) that was developed using a mixed methods approach was administered to AYP from Ogun State, Southwest Nigeria. The DCE attributes were: the type of staff; physical environment; health worker attitude; cost; waiting time; contraceptive availability; and opening hours. The choice tasks had two unlabeled alternatives and an opt-out option. Panel mixed logit choice model was used to fit the choice data, along with estimation of willingness to pay (WTP). Also, a latent class logit model was used to detect underlying preference heterogeneity among the respondents. Finally, the uptake of the services in health facilities was investigated by estimating the probabilities for selecting hypothetical health facilities under different scenarios.ResultsA total of 859 AYP participated resulting in 6872 choice observations. The physical environment attribute had the highest utility rating relative to the other attributes, followed by preference for a doctor and for a service provider who was open and friendly. The cost and time coefficients were negative, revealing preference for lower cost and shorter waiting time. The latent class model had three classes that varied by their background characteristics. Probability of choosing any of the facility alternatives increased with introduction of more favorable facility characteristics.ConclusionThe pattern of preferences identified are potential targets for service design and delivery optimization that may result in improvements in service acceptability and utilization. These results strengthen the call for involving AYP in decision-making in health interventions for them and developing context-specific SRH programs for AYP in public health facilities.

AI Model for Industry Classification Based on Website Data

This paper presents a broad study on the application of the BERT (Bidirectional Encoder Representations from Transformers) model for multiclass text classification, specifically focusing on categorizing business descriptions into 1 of 13 distinct industry categories. The study involved a detailed fine-tuning phase resulting in a consistent decrease in training loss, indicative of the model’s learning efficacy. Subsequent validation on a separate dataset revealed the model’s robust performance, with classification accuracies ranging from 83.5% to 92.6% across different industry classes. Our model showed a high overall accuracy of 88.23%, coupled with a robust F1 score of 0.88. These results highlight the model’s ability to capture and utilize the nuanced features of text data pertinent to various industries. The model has the capability to harness real-time web data, thereby enabling the utilization of the latest and most up-to-date information affecting to the company’s product portfolio. Based on the model’s performance and its characteristics, we believe that the process of relative valuation can be drastically improved.