| dc.description.abstract | The volatility of the stock price make it difficult but fascinating to predict stock prices. Academics or the practitioners try to evaluate the listed company fairly and make the investment action.
The common valuation methods include 1) Asset Appraisal Approach, 2) Discounted Valuation Model, and 3) Relative Valuation. Among the above three methods, the Relative Valuation is the most popular method in capital market, thanks to its simple calculation. Therefore, I hereby choose P/E ratio to be the valuation methodology in my research. In this report, the dependent variable is the P/E ratio, and the independent variables include the company’s revenues, margins, inventory turnover in days, shares outstandings, institutional investors holdings, and return on equity.
Our results show that the moment of a company’s revenue represents its increase or decrease in market share from the new products. Based on our research, P/E ratio is related the company’s revenue performance. The investors are suggested to monitor the company’s revenue trends.
Furthermore, the higher days in inventory turnover also imply that the company is either facing a downturn in the industry cycle, or a weak management of the company. Therefore, the days in inventory turnover is negatively related to the P/E ratio.
Another result shows that a small company, in terms of its shares outstanding, enjoys higher P/E ratio in the short-term but not in the long run. In the long run, the big company is expected to have a higher valuation since it has much more resources and solid client base. | en_US |