Security Analysis Project – FINANCE —LULULEMON—-Need excel spreadsheet valuation

Selecting a security

Each student will select a company to follow and analyze over the semester. You are free to select any publicly traded company. However, to make your analysis easier, your company should fit the following characteristics:

• A trend of positive sales revenue and earnings. At least 3 to 5 years would be good. Companies that are not making a profit (i.e., most dot.com’s) are much more difficult to value.
• Offer a product or service that you understand. High tech, biotech, computer-related companies can be difficult if you do not know the field pretty well.
• Have a moderate level of debt. Companies with excessive debt are often close to bankruptcy and traditional valuation methods are not as useful in such situations.
• Are engaged in a single industry. Conglomerates are difficult to assess since they do not have a well-defined peer group for comparative purposes.
• Have not done an IPO too recently. Companies that have recently gone public do not have much of a track record. It is difficult to get historical financial information on the company and generally, there is a great deal of uncertainty. Also, the IPO market is notoriously unpredictable and many IPO’s have shot up early, only to crash later.

A company can only be covered by one student. Therefore, if you know your company, tell me as soon as possible so that it is not selected by another student. I will maintain a list of all companies selected. See me if you are having problems finding a good company.

Preparing the Report

            The basis for your recommendation should be a fundamental analysis of the company and the stock as an investment.  I encourage your creativity in this project.  You must remain scientifically objective and not identify with or become an advocate for the company you are analyzing.

            Your written report must have the following minimum content:

1. A description of the company, its products and services, recent events that are relevant to the valuation of the company, and recent trends in sales and earnings.
2. An analysis of current macroeconomics that are relevant to the company. You might consider discussing current monetary policy, interest rates, inflation, business cycle conditions, and any other macroeconomic subject that is relevant to value of the company you choose.
3. An analysis of stock market conditions including recent returns on stock market indexes and average valuation ratios such as P/E ratios of stock market indexes.
4. An analysis of the industry, i.e., degree of competition, growth of industry-wide sales, profitability of competitors, life cycle stage of the industry, Porter’s five factors, and P/E ratios of competing companies.
5. A complete analysis of the company’s financial statements for a minimum of the most recent three years of available data including a comparison of the company’s ratios to most recent year’s peer company average ratios.  Complete the ratio calculations yourself.  Do not copy them from another source.
6. A pro forma income statement analysis that includes a forecast of revenue for the coming year, major cost and expense categories, earnings, earnings per share, and dividends.  Rely on your own forecast.  Do not base your analysis on a sales or earnings forecast from a secondary source such as Bloomberg.
7. A valuation of the stock or a range of values that would provide a basis for an investment decision.  Include the assumptions you make and your calculation steps.  You may calculate the stock’s required return from an SML or APT equation.
8. An unambiguous buy or sell investment recommendation based on your analysis.

            You may add content to the list above, but do not omit any of items 1 through 8 from your paper.  Your report should include relevant charts and graphs but be sure you discuss the relevance of those exhibits in your paper if you present them. 

            To be complete, your paper must also include the following:

1. complete citations of sources within the narrative of the paper;
2. a complete bibliography or list of references;
3. a copy of the company’s most recent balance sheet and income statement from the company’s most recent annual report to shareholders.

            A paper without citations is incomplete and will receive a grade of F. If there are citations that are missing, I will give you an opportunity to add them to your paper and grade the paper as a late submission. If you have any questions on how to cite a source, please ask me for assistance. Your word-processed, error-free paper is due on Canvas (through Turnitin) no later than 11:59 p.m. on November 24, 2024. Late papers will be penalized a letter grade per day. The length of your paper should be no more than 10 double spaced pages of 12-point type exclusive of references and appendix documents.

            Among your many references, there must be references to the following sources: the company’s most recent annual report to stockholders, the most recent Bloomberg analysis of the company, S&P Industry Survey report on the industry, and an S&P Outlook report on current and expected economic conditions. 

            Finally, your paper must be original and not reused from any other course without my permission.