Stock Market Analysis
The analysis of stock market processes enables a company to predict its future market value, assess its current financial state, and compare its value to that of its competitors in the business. For shareholders, the analytical insights into a company’s stock market peculiarities, as well as its intrinsic and market value, provide an opportunity to make informed decisions about investments and future financial planning. In this regard, it is essential to establish the differences between the intrinsic value and market value of a stock by using the example of Apple Inc. This paper will focus on Apple’s stock value in the current market, as well as from the perspective of dividend discount model calculations, to identify the differences between them.
Intrinsic vs. Market Stock Value
Investment decisions are aligned with stock price predictions and valuations, which enable the acquisition of information on how the value of a company’s shares will change over time and whether they might generate a profit. For that matter, it is essential to differentiate between intrinsic value and market value. According to research, the intrinsic value of a stock refers to the value of a share that results from an accurate analysis of tangible and intangible factors, along with thorough calculations (Sutjipto et al., 2020). In other words, it represents the intrinsic value of a company’s stock, based on the financial details of the organization at a specific point in time.
The market value of a stock, on the other hand, is the price that might be paid to buy a stock, given the particularities of the exchange market conditions (Nabipour et al., 2020). These indicators may be the same or different, indicating the overall opportunities for investors to benefit from buying stocks in a company. In particular, it is more beneficial to invest in companies with higher intrinsic value than market value, since they are more reliable from a long-term perspective.
Apple Inc.’s Example
For this assignment, Apple Inc. was selected as a company whose shares will be analyzed. The stock price of an Apple share, according to NASDAQ, is $194.50 (“Investor relations,” 2023). This price represents the company’s market value of a stock. To calculate its intrinsic value, the dividend discount model formula should be used.
In particular, to find the price of a stock, one should divide the estimated value of the dividend for the next year by the difference between the cost of capital and the constant dividend growth rate. For Apple, the intrinsic value calculated using this formula is $183.49. Thus, the comparison of the intrinsic value and the market value for Apple Inc. demonstrates that the market value is $11.01 higher than the intrinsic value.
These results suggest that Apple Inc.’s stock is overvalued due to the inconsistency between the price and intrinsic value, favoring the market price per share. For that matter, value-oriented investors might not find Apple Inc.’s shares interesting for investment due to the low level of opportunity to generate profit in such an investment. Such an analysis enables the acquisition of a realistic and objective perspective on a company’s potential for investment. Therefore, when deciding to purchase stocks, one should prioritize companies that demonstrate a higher intrinsic value per share than the market price for that stock.
References
Investor relations. (2023).
Nabipour, M., Nayyeri, P., Jabani, H., Mosavi, A., & Salwana, E. (2020). Deep learning for stock market prediction. Entropy, 22(8), 1-23.
Sutjipto, E., Setiawan, W., & Ghozali, I. (2020). Determination of intrinsic value: Dividend discount model and discounted cash flow methods in Indonesia stock exchange. International Journal of Management, 11(11), 1842-1852.