Web Stocks: Esteem and Exchanging System

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Sort stocks amid a specific time period and pick main 25 ... Stock returns were contrasted with a

Presentation Transcript

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´╗┐Web Stocks: Value and Trading Strategy Rob Freund Petter Hellman Ole Hvidsten Jiong Shao Rick Solano

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Main Points Value in principle Internet inadequacies for conventional esteem Modifications to hypothesis for Internet stocks Trading technique Conclusion Questions

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Value in Theory Investors need cash Industry development versus age bend New industry - development vital Mature industry - returns essential Graph

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Internet Shortcomings Modern valuation hypothesis made amid a period when there was no rising society-shaking innovation Valuation hypothesis in view of profit and net wage. Web terminal qualities are hazy. Can't utilize current execution to extrapolate future execution.

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Laying Odds on Success of Firm's Value Proposition Total Market Capitalization of Industry (e.g. Retail: $1.45T %, FCF Margin = 5%) { Expected Market Cap position of firm (PV $) (e.g. Amazon: Market Share = 10% MCAP = $145B) Payoff to financial specialists if firm effective Current Market Cap of firm (e.g. Amazon MCAP starting 8-31-99 = $14.14B) { Bet put by speculators Current Value of firm utilizing existing money related execution standard (e.g. Not Applicable - no income) Price of wager impacted by variables influencing expected future result (e.g. beginning QB breaks leg day before Superbowl) - IN THIS CASE, MARKET HAS SET 10-1 ODDS ON AMAZON CROSSING THE FINISH LINE IN THIS POSITION

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Hypothesis for Future Returns We should discover an intermediary to show the potential for future salary. Potential intermediary competitors: MCAP/Sales PSSG PSSA Sales development

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Trading Strategy Sort stocks amid a specific era and pick best 25% Stock sorted on the pay intermediary Positions taken toward the end of the second month taking after the quarter utilized for examination Returns figured more than three month holding period Stock returns were contrasted with a "purchase and hold" procedure of stocks incorporated into the H & Q Internet Index Results Index

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Conclusion Must utilize an intermediary for income A purchase and hold technique can be beaten Current esteem depends on financial specialist saw future potential

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Industry Growth versus Time Growth Rate Return Time

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Results of Various Sort-Trading Strategies Using an essentially MCAP to Sales proportion to sort yields the most noteworthy return

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MCAP to Sales and Sales Growth Ratio Incorporate deals and deals development into a valuation parameter Based on PEG (cost to profit and income development) Formula - MCAP/(S* D S) As the firm/business develops, development decreases, so genuine deals must get the esteem slack

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H & Q Internet list Due to MCAP weighting - the record return has been fundamentally skewed by a couple exceptionally fruitful stocks

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Traditional versus Web Traditional Players exist and stable Market measure identifiable Can assess terminal esteem since market estimate known Extrapolate current execution in view of transient administration direction Internet Terminal esteem obscure Can't utilize current execution to extrapolate Factors deciding developed market execution Margins Market Size Market Share