Relative or Discounted Cash Flow Valuation on the Fifty Largest US-Based Corporations on Nasdaq : Which of these valuation methods provides the most accurate valuation forecast?

Abstract: The topic of this Bachelor Thesis is “Which of these valuation methods provides the most accurate valuation forecast”. Assuming that the year is 2020, the goal of this thesis is to forecast the future stock prices of the fifty largest US-based companies on the Nasdaq stock exchange for 2021 and 2022. By using a quantitative method and looking ten years back at historical data. We determine which valuation method provides the most accurate stock price when conducted in a non-sector specific sample by comparing predicted prices to actual stock prices and discussing the results. There are several ways to evaluate a company and the ones being utilized in this thesis are the discounted cash flow valuation method, the price-to-earnings ratio method (equity multiple), and enterprise value to enterprise value before interest, tax, and depreciation (firm multiple). Our results show that when reviewing the valuations of multiple companies in different sectors the relative valuation methods provide better predictions with EV/EBITDA rather than the discounted cash flow method. This thesis provides the reader with a comprehensive overview of these different valuation methods and their effectiveness in providing valuation forecasts. The result of this thesis is beneficial for policymakers, investors, and financial analysts when forecasting future stock prices.