GTI’s Stock Price Valuation: Monte Carlo Simulation and Black-Scholes Option Pricing Modeln
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loginABSTRACT
The primary purpose of this study is to estimate the intrinsic value of GTI’s stock in order to compare it with its market price on the valuation date. This is to investigate if the currently traded GTI’s stock in the CSX is overvalued or undervalued. In this study, three valuation methods are employed to calculate the intrinsic value of GTI’s stock, namely Discounted Cash Flow (DCF), Monte Carlo Simulation (MCS) and Black-Scholes (BS) Option Pricing model. In undertaking DCF analysis, the growth rate of EBIT in the high-growth and stable or terminal growth phases and WACC are projected to change simultaneously. Each determinant is fitted to normal distribution with specific mean and standard deviation to run Monte Carlo Simulation on GTI’s firm value and GTI’s stock price through 10,000 trials. Firm value generated from DCF model and the variance of natural logarithm of firm value determined from MCS model are utilized in the BS model to determine Call option premium or equity value and the stock price of GTI. The one year target stock price of GTI represents the weighted average of the outcome derived from the three approaches, with DCF at 50 percent, MCS at 25 percent and BS model at 25 percent. The one year targeted price has a downsize return of 4.82 percent and has a 64.14 percent probability of sale or short-selling.
Keywords: GTI, Discounted Cash Flow, Monte Carlo Simulation, Black-Scholes Option Pricing.
