Presentation Title

Buy, Sell or Hold? Valuing the Stock of a Mid-Cap Canadian Company: CAE Inc.

Format of Presentation

Poster to be presented the Friday of the conference

Abstract

There are two main ways to value a stock price, through technical analysis (which involves looking at charts and statistics to track the movement of a stock to determine its future share price) and fundamental analysis. The latter involves research into the company’s financial statements, economic conditions, and other market factors, to find the intrinsic value (or true market value) of the business. The intrinsic value can then be used to determine the fair price of a share. Once a fair price has been calculated, it can be compared to the current price on the market to determine whether or not that price is overvalued or undervalued.

The main purpose of this poster is to look at some of the qualitative and quantitative data of a Canadian simulation company, CAE Inc., to determine whether or not the underlying business fundamentals support the actual price that is trading on the Toronto Stock Exchange. We began by calculating the firm’s capital structure, which after finding the cost of debt and cost of equity helped us calculate the weighted average cost of capital of the firm. We then used different valuation methods, including the Free Cash Flow to Equity method and the Market Multiples approach, to come up with a share price that we felt fairly reflected the company’s true value over the next 12 months. Our newly determined share price provided us with the ability to make a Buy, Sell, or Hold recommendation.

Department

Accounting and Finance

Faculty Advisor

Dan Thompson

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Buy, Sell or Hold? Valuing the Stock of a Mid-Cap Canadian Company: CAE Inc.

There are two main ways to value a stock price, through technical analysis (which involves looking at charts and statistics to track the movement of a stock to determine its future share price) and fundamental analysis. The latter involves research into the company’s financial statements, economic conditions, and other market factors, to find the intrinsic value (or true market value) of the business. The intrinsic value can then be used to determine the fair price of a share. Once a fair price has been calculated, it can be compared to the current price on the market to determine whether or not that price is overvalued or undervalued.

The main purpose of this poster is to look at some of the qualitative and quantitative data of a Canadian simulation company, CAE Inc., to determine whether or not the underlying business fundamentals support the actual price that is trading on the Toronto Stock Exchange. We began by calculating the firm’s capital structure, which after finding the cost of debt and cost of equity helped us calculate the weighted average cost of capital of the firm. We then used different valuation methods, including the Free Cash Flow to Equity method and the Market Multiples approach, to come up with a share price that we felt fairly reflected the company’s true value over the next 12 months. Our newly determined share price provided us with the ability to make a Buy, Sell, or Hold recommendation.