Fundamental Stock Analysis : A study of the fundamental analysis for practical use at the Swedish Stock Exchange

Sammanfattning: The interest for stocks and stock-trading has grown tremendously during the  last decade. The challenge for small private investors is how to use and filter  the most relevant information in the stock selection process. As a result, this  thesis investigates the accuracy of the Gordon Growth, Discounted Cash Flow  (Free Cash Flow to Equity), P/E multiple, EV/EBITDA multiple, and Net  Asset Valuation in relation to the target prices set by financial analysts. This in  order to create an understanding how target prices are set, and which models  that are useful for a specific firm or industry.    The research covers twelve companies, divided in four industries: telecom,  retail, construction and oil, over the time period of 2008 - 2011. All companies  are listed on NASDAQ OMXS, Large or Mid Cap. In order to determine the  most suitable models, several analyses were conducted in form of two interval  tests (10% and 15%), hit ratio test, and multiple regressions test.     From the results, it can be concluded that there exist no universal valuation  models. However, this research showed that the estimations generated from  EV/EBITDA- and P/E multiples outperformed the other investigated valuation  models. The more complex models: Gordon Growth and Discounted Cash  Flow performed poorly. In this case, the forecasted growth rate is believed to  have had an impact on the results, since it was based upon historical data only.  Due to lack of results, the estimations from the Net Asset Valuation indicated  that none of the firms hold any substantial proportions of tangible net asset in  relation to their market value.