Case Studies to Help You Understand Stock Market Valuation Fundamentals

The stock market can seem like a murky, complicated world of numbers and figures. But the truth is, once you understand the basics, it becomes much easier to explore the different types of stocks on the market.

Stock market valuation is an essential part of investing in stocks. It can change over time as well as across different regions. Here are some case studies that you'll want to read if you're new to investing or are trying to better your understanding of the fundamentals.

  1. Investing Lessons from Test Match Cricket
  2. Bombay Stock Exchange - Case study
  3. Gamestop Stock Price Movements - Case study
  4. Indian IT companies valuation - Case study

 

What are different case studies to help with stock market valuation

Above are four different case studies that can help in understanding stock market valuation. Each one includes a detailed explanation of the fundamentals, in addition to the end goal.

For example, in one study they talk about how Indian IT companies are valued. They include everything from revenue, profit margins, and growth rates to identify which companies are worth investing in. Every company is different, so it's important to read through these case studies to determine which one best applies to your situation.

 

Power of Compounding in Stock Market

One of the primary concepts to understand in stock market valuation is the power of compounding.

This case study illustrates how investing can affect your stock market valuation. For example, if you invest $100 at the start of year 1 and then $200 at the start of year two, this would lead to a compounded growth rate of 100% over the course of three years.

What this means for your investment portfolio is that even if you don't make any additional investments, your portfolio's value will still continue to grow. This concept applies to understanding how much money you need to save for retirement or other goals.

When you buy stocks, the value of your stock can change depending on what you paid for it. But there are also other factors that affect the price - like the interest rates, economic growth, or how much demand there is for a specific product or service. One factor to keep in mind is compounding.

Compounding is an investment term that means earning interest the more often it's compounded. The more frequently your money earns interest, the higher your potential earnings will be. To take advantage of this power, you should invest in stocks that have a high annual rate of return.

If you've invested in stocks that aren't earning as much, then your money will grow slower because it's not getting reinvested at a high enough rate.

 

Investing Lessons from Test Cricket

One way to understand the fundamentals of valuation is by looking at stock market movements in different industries.

Cricket is one industry that illustrates this well. One reason for this may be the long-term perspective of cricket - all matches are five days, which contrasts with other popular sports, like football or basketball, where games are often measured in minutes rather than hours. This longer timeframe seems to lead to more stable stock price movements.

If you've ever watched a cricket match - or even the show "Cricket 24x7" on ESPN 3 - you'll know that it's one of the most unpredictable sports. The game is played over five days, with each team having one innings, or turn to bat. It can be difficult to predict the outcome of the game because anything could happen in between - rain delays, time-outs, and even scorecard disputes. But if you look at how teams fare historically after they've had two innings to bat, you'll notice something interesting:

The team batting second has won more than twice as many matches as those batting first.

This is a valuable lesson for those looking to invest in stocks. It can be tough to predict what will happen as companies grow and change over time, but it's helpful to look at their past financial performance and see if they're trending upwards or downwards. Those who have been on a losing streak for some time may just need a break to get back on top of their game. And those who have been successful might be worth investing in right now before they take off.

 

Bombay Stock Exchange

The Bombay Stock Exchange (BSE) is a major Indian stock exchange. It was established in the 1800s and has been operating since then. It was incorporated with the Securities and Exchange Board of India with the passing of the Securities and Exchange Board of India Act in 1988.

The BSE has seen many fluctuations in its share prices. In 2011, the index peaked at over 25,000 points only to drop down to under 15,000 points by 2013. But since then it has recovered and is currently hovering around 23,000 points.

It has been calculated that the BSE's market capitalization as of October 2017 was just over 1 trillion US dollars.

 

Gamestop Stock Price Movements

Gamestop has been a popular choice for gamers and those who enjoy the traditional video game store experience. Gamestop is a retail company that sells new and pre-owned video games, consoles, and accessories, in addition to other items related to gaming.

Gamestop is an American video game and electronics retailer. Gamestop has been struggling in recent years, not just because of a shift in the market but also because they have made some mistakes. In particular, Gamestop has been slow to adapt to the rise of mobile gaming and digital downloads.

Gamestop has faced stiff competition in recent years from online retailers like Amazon and also brick-and-mortar stores like Best Buy. This has resulted in lower profit margins for Gamestop than at its peak in 2006.

In 2015, Gamestop stock prices dropped by 20%. The company has lost over $1 billion in market cap in 2017 alone. In November 2017, shares were down by 5% to $14.30 per share. Gamestop's management team has acknowledged the difficulties the company faces, but insists that it will be able to turn things around with new leadership and investments in technology.

 

NSE 20 stocks that have shown a positive growth in the past 12 months

1. HERO MOTOCORP LTD

2. TATAELXSI LIMITED

3. SUN TV NETWORK LTD

4. BHARAT FORGE LIMITED

5. VEDANTA LTD

6. HINDUSTAN UNILEVER LTD

7. ITC LTD

8. SBI CAPITAL MARKETS LIMITED

9. ACC Ltd

10. GAIL (India) Ltd

11. BANK OF MAHARASHTRA

12. ASIAN PAINTS INDIA LIMITED

13. CEAT LIMITED

14. COAL INDIA LTD

15. CANARA BANK

16. IRB INFRA ENGINEERS LTD

17. GAIL (INDIA) LIMITED

18. IDFC FIRST BANK LIMITED

19. L&T HOLDINGS LTD

20. RELIANCE COMMUNICATIONS

 

Conclusion

When it comes to learning the fundamentals of the stock market, you’ve got a lot of options.

And with so many options, it can be hard to know which one is the right one for you.

Case studies can help you learn about the basics of stock market investing and valuation, but they don’t tell the whole story.

The best way to learn is by doing. Start investing in stocks to see the power of compounding in action for yourself!

Stock market valuation is a complex subject. There are many factors that contribute to a company's worth, and this makes it difficult to assess a set value. To help you understand, we have compiled a list of case studies that can teach you about stock market valuation.

In this article, we have discussed different case studies to help with your understanding of the stock market valuation. The lesson from Gamestop is an example of how a company can fail in spite of a high valuation due to the lack of expected growth. In order to avoid this, it's important to have a clear understanding of what your company can offer in terms of growth.

You also need to consider the other factors that go into the equation, such as management quality and their ability to execute on a vision. And while valuation might seem like a difficult subject to wrap your head around, the case studies we've discussed here should help you get started.

Date
2022-02-07