valuation of palm, inc. case study: human factors and heuristics in palm, inc.’s valuation
TRANSCRIPT
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Valuation of Palm, Inc.Case Study: Human Factors and Heuristics in Palm, Inc.’s Valuation
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Could Palm be undervalued?
Fundamental value per share of $36.99 utilizing the traditional discounted cash flow approach.
The present value of growth opportunities (PVGO) method projects fundamental value per share of $-8.79.
Giving equal weight to both methods results in a projected value of $28.20.
This exceeds Palm’s market price per share of $21.69.
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P/E Ratio
P/E Ratios Market P/E ratio:
145 Fundamental P/E
ratio: 72.5 Fundamental P/E
ratio using PVGO: -17.2
Meaning Lower
Fundamental P/E ratio than other methods.
Indicates market using lower ROE in calculations.
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Palm, Inc v. the market Palm, Inc.’s self valuation suggests
undervalued stock. Is the market wrong in its valuation?
Palm used trailing P/E ratio instead of the appropriate forward P/E ratio.
Palm made questionable decision not to use PEG ratio, given anticipated growth.
Palm relied on valuation heuristics rather than discounted cash flow methods.
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Human factors? Values used to calculate the P/E ratio &
price-to-sales ratios more readily available than those needed to use discounted cash flow techniques.
Excessive optimism in anticipated 26% ROE.
Achoring and adjustment possible contributor.
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Recommendations for effective valuation Support more intuitive valuation
techniques with discounted cash flow analysis.
Remain aware of biases.