Question

On February 24, 2020, you tuned into CNBC financial TV channel and watched different financial analysts discussing the current valuations of Amazon, Apple, Google, Goldman Sachs, and the overall U.S. and European stock markets. However, you are puzzled because these analysts could not agree on the current valuations and end-of-year price targets for the four companies and overall stock market. For example, two analysts argued that Amazon and Goldman Sachs (an investment bank) are currently overvalued, while others reached the opposite conclusion. Their end-of-the-year stock price targets for the four stocks and overall market also varied widely. Please solve this puzzle and explain how these analysts (and stock analysts in general) can reach such very different conclusions on stock valuations and price targets. You can assume that all analysts are using the same three stock valuation approaches.

Answer 1

Various analyst can have different valuation perspective and can arrive at different valuation of similar stocks.

Here in this question, it's given that all the analysts gave differt targets using same valuation method , it is such because of their differences in growth projection and difference in accounting rate which is used to discount the future rate.

They could well have different approaches towards calculations of present value and followed different accounting principles.It is often difficult to reach a similar price when many experts are valuing the similar stocks because they just don't discount prices but they also discount different prevelent economic scenario and other factors.

To arrive at a similar valuation ,They need to follow similar growth rate and future projections as well as they also need to follow a range bound valuation system inn the bull and bear scenario so that there is a flexibility in valuation no some stern approach towards it.