Question

Calculate the intrinsic value for the shares of your selected company using Dividend growth model or P/E Ratio model. Justify the workings, if any. Compare the intrinsic value to its current share price. Is the share overvalued or undervalued? Explain in detail the rationale(s) of using Dividend growth model or P/E Ratio model in your stock valuation.
[Hint: The financial data could be obtained from the company’s annual reports]

For AIR ASIA group berhad

Dividend growth model= D1/(k-g)

                                      =RM0.9/ (18.52% - 7.4%)

                                      =RM8.09

Current share price: RM0.65 (Undervalued)

P/E ratio= Market value per share/ Earnings per share

              = RM0.65/-RM0.67

              = -0.97

*Not sure whether correct or not, if wrong can let me know and help me explain in details for the second part

Answer 1

Dividend Growth Model = Assume u have used Gordon growth model where dividends paying for perpituity ,

thats why you got positive value and shown as Undervalued.

P/E ratio gives another value ,because earnings per share is negative , as the company has made some losses during last financial year, P/E cannot be defined at this point of view. As the company is making Losses, its highly risky to invest in this particular company. So when P/E ratio is Negative it means that company is making losses.