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Meeting Agenda. Announcements Market Overview: Economics Update Lecture: Multiples Analysis Portfolio Update Pitch: INTC Important Dates. Announcements. Fall Portfolio Challenge. Build and manage your own virtual portfolio Compete with other McCombs students

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meeting agenda
Meeting Agenda
  • Announcements
  • Market Overview: Economics Update
  • Lecture: Multiples Analysis
  • Portfolio Update
  • Pitch: INTC
  • Important Dates
announcements
Announcements

Fall Portfolio Challenge

  • Build and manage your own virtual portfolio
    • Compete with other McCombs students
      • Top three winners receive prizes in January

$5

entry fee

  • Register at usiteam.org/events
announcements3
Announcements

Free Wall Street Journal digital access for paid members

Contact treasurer@usiteam.org to receive login information

announcements4
Announcements

The Suggestion Box

3 main metrics
3 Main Metrics
  • Adjusted Civilian Unemployment Rate
  • Inflation
  • GDP
lecture multiples analysis
Lecture: Multiples Analysis
  • Objectives
    • What is a multiple?
    • How is a multiple calculated?
    • How is a multiple used?
    • How do you evaluate a multiple?
accounting in 2 minutes
Accounting in 2 minutes

Revenue

Cost of the inputs associated with the product

Literally the cost of the goods you sell

Cost of input per unit x units sold

-Cost of Goods Sold

The final residual profit after all expenses and taxes have been taken out

Also known as net income, net profit

Costs not associated with producing the good

Ex.) salaries paid to accountants or executives

Gross Profit

Price per unit x units sold

-Operating Expenses

Operating Profit

-Taxes

Earnings

stock price
Stock Price

AAPL

LNKD

$467.41 per share

$243.90 per share

If we want to invest in cheap stocks (buy-low-sell-high), which would you invest in?

stock price is arbitrary
Stock price is arbitrary!

A company wants to sell a bunch of stock onto a stock exchange to raise money (IPO)

The company needs to raise $100 million

The company gets to choose the stock price it wants to issue the stock at

1 million shares @ $100 each

10 million shares @ $10 each

100 million shares @ $1 each

1 billion shares @ $0.10 each

Price is only used to gauge how much you make off a buy-and-sell trade. It is NOT a determinant of value

back to multiples
Back to multiples
  • We want to figure out if an investment is cheap
relative valuation example
Relative Valuation Example

Your exotic friend asks you to go buy this fruit you’ve never seen for him, but to not spend too much for him.

The fruit is only sold by one vendor and costs $5 each, but you have no idea if that’s a good price. What do you do?

You compare it to other things that are like it, namely, other fruit!

You can refine your search further by comparing to other fruit that look and taste like it.

relative valuation example1
Relative Valuation Example

You look around and find a vendor who has a similar looking, but slightly larger fruit.

In order to standardize the price and eliminate the factor of size, we can calculate the price per pound

You look around and find a vendor who has a similar looking, but larger fruit, selling for $10 each.

$10 each

$5 each

relative valuation
Relative Valuation
  • Much in the way price is arbitrary for fruit until you standardize it per unit of weight, stock price can be standardized per unit of earnings

Price per share

Investors tend to want to pay less for a dollar of earnings like paying less per pound of fruit

Tells you how much you pay per dollar of earnings

=

=

Earnings per share

Total earnings / total shares

price to earnings example
Price to Earnings Example

AAPL

LNKD

$476.41

$243.90

$40.82

$.37

=676.6x

=11.7x

interpreting a p e multiple
Interpreting a P/E Multiple
  • Lower isn’t always better
    • For better, safer, growing companies, investors are willing to “pay a higher multiple”
    • Sometimes a higher multiple indicates expectation the company will “grow into it”
  • Cheap has two meanings
    • You can get a good price
    • But that also means you could be getting bad quality
questioning a multiple
Questioning a Multiple
  • Low Multiple + Quality Company = Good investment
    • If it’s so great, why is it cheap?

Small Company- not regularly covered by Wall Street Analysts

Exaggerated Bad News

Future of the company is going to result in multiple expansion

Quality is being incorrectly perceived

multiples used
Multiples Used

Price per share

How much you pay per dollar of earnings

Earnings per share

Price per share

How much you pay per dollar of resources of the business

Book value per share

Price per share

Like P/E, but using cash flow (different from earnings)

Cash Flow per share

Enterprise Value

Like P/E, but using better measurements of price and a proxy for cash flow/earnings. Most popular multiple

EBITDA

derivation of stock price
Derivation of Stock Price

P/E Industry = P/E Target Company

  • We know:
  • P/E Industry (average of P/E of similar companies)
  • Earnings Per Share company (10-K)
  • We want to solve for price

10.2x

$3

Price

P/E Industry

Price

10.2x

=

10.2x * $3

EPS

$3

As long as the stock is trading below the industry multiple, its implied price will be higher than its current price.

andrew smith noah pentecost jenny lai edward zhao bethany mandrell
Andrew Smith

Noah Pentecost

Jenny Lai

Edward Zhao

Bethany Mandrell

overview
Overview

Investment Thesis

Valuation

Company Overview

Risks/Mitigations

slide35

Investment Thesis

  • Strong company with healthy dividends
  • Undervalued relative to competitors
  • Trading at discount when you consider their market position and innovation
slide36

Company Overview

PC/

Tablet

Servers

Mobile

slide37

Comparables

  • Price to earnings below competitors and industry average
slide38

Risks/Mitigations

Vertical Integration

PC Revenue Declines

  • High growth in tablet market share
  • Over 90% market share in server chips
  • Vertical integration is capital intensive
  • Competition between Apple and Samsung
slide39

Risks/Mitigations

Tech/Market Developments

Changes in Market Mix

  • Shifts to Tablets
  • Strong Company Brand
  • Intel Core
  • Consistent since 1970s
  • Leader in microprocessor technology
  • Tomorrow Project
pitch team sign ups
Pitch Team Sign-Ups

www.usiteam.org/membership

important dates
Important Dates
  • Thursday, Sept. 26, 6-8PM- Investment Banking Workshop -UTC3.102
  • Saturday, October 12: Last day to register for TXSP
    • www.usiteam.org/events
  • Saturday, October 19: Texas Stock Pitch Competition
announcements5
Announcements

Workshops

Every Thursday 7-8PM

SAC2.120

  • Topic this week:
  • Comps Analysis