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Essay Available:
Pages:
4 pages/≈1100 words
Sources:
1 Source
Level:
MLA
Subject:
Accounting, Finance, SPSS
Type:
Reaction Paper
Language:
English (U.S.)
Document:
MS Word
Date:
Total cost:
$ 20.59
Topic:

Response To Stock Market Analysis: Purchasing Olympic Stock (Reaction Paper Sample)

Instructions:

Answer the questions below after finish reading the passage:(The questions will also be attached)
1. Should you still consider purchasing Olympic stock in light of the analysts' arguments about why it may be undervalued?
2. Should you still consider purchasing Kenner stock in light of the analysts' arguments about why it may be undervalued?
3. Some stock analysts have just predicted that the prices of most stocks will fall higher required rates of return when valuing stocks. The analysts used this logic to suggest that the present value of future cash flows would decline if interest rates rise. The expected increase in interest rates is due to expectations of a stronger economy, which will result in an increased demand for loanable funds by corporations and individuals. Do you believe that stock prices will decline if the economy strengthens and interest rates rise?

source..
Content:


Your Full Names
Course Name: Accounting
Course No.: Acc456
Professor
Semester: Fall
1.0 Response to Stock Market Analysis
As a stock portfolio manager, I shall seek to optimize stock investment returns, by identifying and investing in undervalued stocks.According toa stock analyst's report, Olympic and Kenner stocks are undervalued since their price earnings ratio (P/E ratio) is slightly lower than the industry average. As a portfolio manager, I will first determine the P/E ratio for Olympic and Kenner and compare it with the prevailing industry average. According to the stock analyst, Olympics' P/E ratio stands at6against the industry average of 8 (Madura 2006). From the analysts point of view, the stocks are undervalued, hence presents an attractive investment decision. From my independent perspective, it will be unwise to rely on the analyst's advice since his assessment is based on a single fundamental valuation tool, P/E ratio. Given the complexity and multifaceted nature of quoted companies, it's impossible to determine their stock value based on a single ratio. In my analysis, I shall use all available stock valuation ratios to help make a rational investment decision devoid of speculative bias.
Despite the recent decline in Olympic stock prices, driven by an anticipated decline in quarterly earnings linked to a recent restructuring program, I may still consider purchasing the stock. Reason being that the share price decline could have been purely speculative.Conversely, restructuring was motivated largely bya board decision aimed at boosting the company's future performance. In my assessment, this would be a fundamental consideration in making a purchase decision. The share price decline could have been largely sparked by market speculation that the restructuring could have been aimed at correcting internal failures. As a result, most investors could have opted for a wait and see strategy, which could have pushed the demand of the stock down. It's likely that analysts based their conclusions on speculative data that could turn out to be unrealistic(339).
QUESTION ONE
I may still consider purchasing Olympic stock after independentfundamental and technical analysis. A careful consideration of stockanalysts' arguments on why it might be undervalued will also be necessary. Besides the presented arguments, I will also conduct my own stock valuation based on available company information and market fundamentals.
QUESTION 2
I may still consider purchasing Kenner Inc. stock in light of analyst's arguments that the stock is undervalued.Kenner Inc. has a P/E ratio of 9 against the industry average of 11 (Madura 2006). Industry reports indicate that the company's earnings have been consistently impressive in the recent past, even though it has lagged behind in technology adoption which could be a speculative reason that it may lose market share to competitors. This is proof that the undervaluation of Kenner's stocks was purely speculative. I will independently review the company's documents for information that could suggest that plans to adopt technology were underway. If it's so, then I would consider purchasing the stock after careful evaluation s other ratios other than P/E.
The analyst's prediction that certain company stocks could decline due to an anticipated rise in interest rates could be either right or wrong. Their prediction is based on the premise that a rise in interest rates could trigger investors to begin effecting higher rates of return in stock valuation. The analysts' argument that the present value of future cash flows would decline in response to increase in interest rates could be flawed as it'spurely specula

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