Authors : Walid Muhammad Masadeh, Wasfi Al Salamat, Rami Al Zebdieh and Anas Najeeb Ghazalat
Abstract: The aim and objective of this study is to make a stock valuation for Arab Potash Company (APC) based on two methods of strategic and financial performance analysis. Specially, we use is Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis for strategic analysis and Discounted Free Cash Flow (DFCF), Dividend Discount Model (DDM) and ratios analysis for financial performance analysis. Based on the aforementioned analyses we came to a conclusion that the stock price of APO is overvalued as the SWOT analysis shows that APC is exposed to different kinds of risks such as, sales risk, financial risk, credit risk, liquidity risk, political risk. However, the volatility of sales is considered the most critical risk could affect the profitability of the APC. With regard to the financial analysis, the valuation of APC stock price arrives at the price of 7.272 JOD which is lower the market price of 16.90 JOD. The estimated value per share is driven by 35% of DFCF Model price of 5.92 JOD and 65% of DDM price of 8.00 JOD. The 65% weight assigned to the DDM Model for two reasons: firstly, a flaw in the DFCF Model is that relies significantly on the terminal value. Secondly, the assumption that APC is a Blue-chip company that has reached maturity as it has been paying dividends consistently with rates that exceed its retention ratio in the last couple of years, thus, APC’s stocks are considered to be “Income stocks”. In addition, a positive relationship is found between the company’s dividends and its closing price.
Walid Muhammad Masadeh, Wasfi Al Salamat, Rami Al Zebdieh and Anas Najeeb Ghazalat, 2019. Stock Valuation, Strategic and Financial Analysis: A Case Study for Arab Potash Company (APOT) (Jordan). International Business Management, 13: 134-150.