Discussion: Valuing a Stock
A great company is not a great investment if you pay too much for the stock.
—Benjamin Graham, The Intelligent Investor
After developing a fundamental understating of stocks (i.e., what they represent, how they are obtained, etc.), a prudent investor could focus on improving his or her ability to determine the value of stocks. Investing in stocks while they are undervalued can lead to impressive returns, but buying overvalued stocks can lead to painful losses. The process of valuing stocks can be difficult and is sometimes as much of an art as it is a mathematical exercise—especially when attempting to predict future cash flows for young, growing companies. In this Discussion, you will determine the value of a stock and describe how you did so with your colleagues, as well as provide a recommendation of whether or not you would recommend buying the stock.
Note: Any stock recommendations that you or your colleagues provide in this Discussion are for educational purposes only. Professionals who provide financial and investment advice are licensed and regulated, and you should assume that your colleagues are not professional financial advisors. Unless you have expertise and experience in this area, you are strongly advised not to act on any information from this Discussion to make real investment decisions.
To prepare for this Discussion:
- Locate a common stock to use for this Discussion. (Note:You could use the NASDAQ site from the Week 2 Discussion, or you could search for a stock on Google Finance or Yahoo Finance.)
- Refer to this week’s Learning Resources on Stock Valuation and determine the value of the stock.
- Review the Academic Writing Expectations for 2000/3000-Level Courses, provided in this week’s Learning Resources.
By Day 3
Post a 150- to 225-word (2- to 3-paragraph) explanation of the value of your selected common stock. In your explanation, do the following:
- Describe the common stock that you located, including a link to the web page where you located the information about the stock.
- Explain what the value of the stock is and describe how you determined its value.
- Provide a rationale for why or why not you would recommend investing in the stock.
- To support your response, be sure to reference at least one properly cited scholarly source.
Refer to the Week 4 Discussion Rubric for specific grading elements and criteria. Your Instructor will use this grading rubric to assess your work.
Read some of your colleagues’ postings.
By Day 5
Respond with at least 75 words (1 paragraph) each to two or more of your colleagues’ postings by identifying additional factors that your colleagues should consider regarding their recommendations for investing in the stocks they chose.
Return to this Discussion in a few days to read the responses to your initial posting. Note what you have learned or any insights you have gained as a result of the comments your colleagues made.