Performance Evaluation of Stocks’ Valuation Models at MSE

Open access


Subject and purpose of work: The main task of this paper is to examine the proximity of valuations generated by different valuation models to stock prices in order to investigate their reliability at Macedonian Stock Exchange (MSE) and to present alternative “scenario” methodology for discounted free cash flow to firm valuation. Materials and methods: By using publicly available data from MSE we are calculating stock prices with three stock valuation models: Discounted Free Cash Flow, Dividend Discount and Relative Valuation. Results: The evaluation of performance of three stock valuation models at the MSE identified that model of Price Multiplies (P/E and other profitability ratios) offer reliable stock values determination and lower level of price errors compared with the average stocks market prices. Conclusions: The Discounted Free Cash Flow (DCF) model provides values close to average market prices, while Dividend Discount (DDM) valuation model generally mispriced stocks at MSE. We suggest the use of DCF model combined with relative valuation models for accurate stocks’ values calculation at MSE.

1. Alford, A. (1992). The Effect of the Set of Comparable Firms on the Accuracy of the Price-Earnings Valuation Method. Journal of Accounting Research 30, 94-108.

2. Baker, M and Ruback, R. (1999). Estimating Industry Multiplies. Cambridge, MA: Harvard University.

3. Baresa, S; Bogdan, S and Ivanovic, Z. (2013). Strategy of Stock Valuation by Fundamental Analysis. UTMS Journal of Economics 4 (1), 45-51.

4. Beaver, W. and Morse, D. (1978). What do P/E ratios mean?. Financial Analyst Journal. Vol.34: 65-76.

5. Ben-Hsien, B & Chow, L. (1999). The Usefulness of Earnings and Book Value for Equity Valuation in Emerging Capital Markets: Evidence From Listed Companies in the People’s Republic of China. Journal of International Financial Management&Accounting, Volume 10, Issue 2, 85-104.

6. Boatsman, J and Baskin, E. (1981). Asset Valuation with Incomplete Markets. The Accounting Review 56 , 38-53.

7. Caljkusic, V. (2011). Fundamental and Technical Analysis on Croatian Stock Market. Croatian Operational Research Review (CRORR), Vol.2

8. Copeland, T; Murrin, J.& Koller, T. (1994). Valuation. New York: Wiley.

9. Cvijanovic, V; Mikic, M & Tower, E. (2003). Evaluating Croatian Equities. Zagreb Journal of Economics.

10. Damodaran, A. (2002). Damodaran on Valuation. New York: Wiley.

11. Damodaran, A. (2006). Investment Valuation. New York: McGrown-Hill.

12. Damodaran, A. (2007). Valuation Approaches and Metrics: A Survey of the Theory and Evidence. New York: Stern School of Business.

13. El Shamy, M & Metwally, A. (2005). The Value Relevance of Earnings and Book Values in Equity Valuation: An International Case of Kuwait. International Journal of Commerce and Management, 68-79.

14. Fernandez, P. (2001). Valuation using multiplies: How do analyst reach their conclusion?. Working Paper. IESE Business School.

15. Francis, J; Olsson, P & Oswald, D. (1999). Comparing the Accuracy and Explainability of Dividend, Journal of Accounting Research.

16. Jing, L; Doron, N & Jacob, T. (2002, Vol 40 No.1). Equity Valuation using Multiplies. Journal of Accounting Research, 135-174.

17. Kaplan, S.N & Ruback, R.S. (1995). The Valuation of Cash Flow Forecasts: En Empirical Analysis. The Journal of Finance, 1059-93.

18. Liu, J. D.Nissim, and J.Thomas. (2002). Equity Valuation Using Multilplies. Journal of Accounting Research. Vol 40: 135-172.

19. Lie, E., H.J. Lie. (2002). Multiplies Used to Estimate Corporate Value. Financial Analyst Journal Vol 58: 44-54.

20. Nenkov, D. (2010). Relative company valuation methods and lessons of the global financial crisis. Current Issues of Business and Law, Vol.5, 161-186.

21. Ohloson, A.J. (1995). Earnings, Book Values and Dividends in Equity Valuation, Contemporary Accounting Research, 661-687.

22. Palepu, K; Bernard, V& Healy, P (2000). Buiness Analysis and Valuation. Cincinati, Ohio: South-Western College Publishing.

23. Penman, S. H. (1998). Combining Earnings and Book Value in Equity Valuation. Contemporary Accounting Research, 291-324.

24. Pereiro, E.L. (2006). The Practice of Investment Valuations in Emerging Markets: Evidence from Argentina. Management, 160-183.

25. Sougiannis, T & Penman, S.H. (1998). A Comparison of Dividend, Cash Flow and Earnings Approaches to Equity Valuation. Contemporary Accounting Research, 343-383.

26. Yoo, Y. K. (2002). The Valuation Accuracy of Equity Valuation using a combination of multiplies. Review of Accounting and Finance, 105-123.

27. Zarowin, P. (1990). What determines earnings-price ratios: revisited. Journal of Accounting, Auditing and Finance Vol 5: 439-457.

Journal Information


All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 16 16 16
PDF Downloads 11 11 11