Original scientific paper
https://doi.org/10.1080/1331677X.2017.1305793
The accuracy of alternative stock valuation methods – the case of the Warsaw Stock Exchange
Błażej Prusak
orcid.org/0000-0002-6526-0407
Abstract
The main aim of this article is to examine the accuracy of different
methods of share valuation used by Polish analysts in reports
prepared in order to issue recommendations for companies listed
on the Warsaw Stock Exchange. In the literature on the subject, the
view which prevails is that the more sophisticated methods, i.e.
those taking into account the discounting process, are characterised
by higher valuation accuracy. However, the results of the present
analysis show that Polish analysts achieve more accurate valuations
using the market approach than the DCF model. Nevertheless, the
highest level of accuracy is achieved by the target price, which in most
cases is the value of the weighted average of valuations obtained via a
market valuation and discounting methods. In terms of the multiples
which are taken into account in this research, the highest accuracy is
achieved with the use of EV/EBIT, although there are no statistically
significant differences between the valuations calculated using
this multiple and the results obtained with the P/E and EV/EBITDA
multiples. Valuations prepared with the use of individual multiples
usually generate greater errors compared to the DCF model and the
market approach, which uses the weighted average of the valuations
achieved with individual multiples.
Keywords
Share valuation; stock recommendations; financial reports; fundamental analysis; DCF; market approach; multiples
Hrčak ID:
180826
URI
Publication date:
1.12.2017.
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