Stock valuation before and after the COVID-19 pandemic: Free Cash Flow to Firm (FCFF) and relative valuation approach with Discounted Cash Flow (DCF) valuation method
Abstract:
Purpose: This study compares the valuation of hospital companies in the healthcare sector in Indonesia before and during the Covid-19 pandemic on the Indonesia Stock Exchange (IDX). Global crises, including the Covid-19 pandemic, have had a significant impact on stock prices in the IDX and have affected company valuations. Therefore, it is important to study the valuation of stocks in the healthcare sector, especially in hospital companies that are directly related to the pandemic. This research is expected to provide important lessons about stock valuation in the future if a similar phenomenon occurs.
Method: This research focuses on the period before Covid-19 and the period during the peak of Covid-19, specifically in July 2021. This study compared the stock valuations of three hospital companies: HEAL, MIKA, and SILO. The valuation methods used are Discounted Cash Flow using the Free Cash Flow to Firm model and Relative Valuation using PBV and PER.
Results: From the research results, it is known that there has been an increase in the intrinsic value (value per share) of SILO, MIKA, and HEAL from the period before Covid-19 and after the peak of Covid-19 in either pessimistic, moderate, and optimistic scenarios. This increase in intrinsic value is followed by an increase in share prices. MIKA’s valuation did not change in the three scenarios, whereas SILO and HEAL changed only in moderate scenarios. In the relative valuation analysis, there was an increase in PER for SILO, HEAL, and MIKA before and after the peak of Covid-19.
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Cunningham, L. A., & Buffett, W. E. (2013). The Essays of Warren Buffett: Lessons for Corporate America: Carolina Academic Press.
Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset (Vol. 666): John Wiley & Sons.
Garner, B. A. (Ed.) (2014).
Mielcarz, P., & Mlinari?, F. (2014). The superiority of FCFF over EVA and FCFE in capital budgeting. Economic research-Ekonomska istraživanja, 27(1), 559-572.
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Panigrahi, C., Vachhani, K., & Sisodia, M. (2021). Application of discounted cash flow model valuation: The case of exide industries. Application of discounted cash flow model valuation: The case of Exide industries Author Details: Ashok Panigrahi*, Kushal Vachhani, Mohit Sisodia, 8(4), 170-179.
Permana, A., Nurpiana, I., Kosim, B., & Hidayat, R. (2022). Perbedaan kinerja saham indonesia sebelum dan selama masa pandemi covid-19. MOTIVASI, 7(1), 31-41.
Rizvi, S. K. A., Yarovaya, L., Mirza, N., & Naqvi, B. (2022). The impact of COVID-19 on the valuations of non-financial European firms. Heliyon, 8(6).
Uzliawati, L., Yuliana, A., Januarsi, Y., & Santoso, M. (2018). Optimisation of capital structure and firm value.
Wang, H. (2022). Application of Discounted Cash Flow Model in Company Valuation-A Case Study of Netflix. Paper presented at the 2022 2nd International Conference on Economic Development and Business Culture (ICEDBC 2022).
WHO. (2020). Pneumonia of unknown cause – China. Retrieved from https://www.who.int/emergencies/disease-outbreak-news/item/2020-DON229
Yousef, H. H., & Ojah, H. K. (2022). THE IMPACT OF FREE CASH FLOW ON THE EFFICIENCY OF INVESTMENT DECISIONS AND THEIR REFLECTION ON THE FIRM VALUE: AN APPLIED STUDY IN A SAMPLE OF IRAQI COMPANIES LISTED IN THE IRAQ STOCK EXCHANGE. World Economics and Finance Bulletin, 16, 11-20.
- Ba?ci, E. S. (2019). Firm Valuation Concept and Discounted Cash Flow Method: a Comparison of Stock Markets. Annals of Spiru Haret University. Economic Series, 19(2), 51-60.
- Cahyono, A., & Hendrawan, R. (2019). Coal Mining Listed Companies and Their Value: Evidence from Indonesia Stock Exchange. Paper presented at the Proceedings of the 2nd International Conference on Inclusive Business in the Changing World (ICIB 2019).
- Cunningham, L. A., & Buffett, W. E. (2013). The Essays of Warren Buffett: Lessons for Corporate America: Carolina Academic Press.
- Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset (Vol. 666): John Wiley & Sons.
- Garner, B. A. (Ed.) (2014).
- Mielcarz, P., & Mlinari?, F. (2014). The superiority of FCFF over EVA and FCFE in capital budgeting. Economic research-Ekonomska istraživanja, 27(1), 559-572.
- Nuraini, R. (2020). Kasus Covid-19 Pertama, Masyarakat Jangan Panik. Retrieved from https://indonesia.go.id/narasi/indonesia-dalam-angka/ekonomi/kasus-covid-19-pertama-masyarakat-jangan-panik
- Panigrahi, C., Vachhani, K., & Sisodia, M. (2021). Application of discounted cash flow model valuation: The case of exide industries. Application of discounted cash flow model valuation: The case of Exide industries Author Details: Ashok Panigrahi*, Kushal Vachhani, Mohit Sisodia, 8(4), 170-179.
- Permana, A., Nurpiana, I., Kosim, B., & Hidayat, R. (2022). Perbedaan kinerja saham indonesia sebelum dan selama masa pandemi covid-19. MOTIVASI, 7(1), 31-41.
- Rizvi, S. K. A., Yarovaya, L., Mirza, N., & Naqvi, B. (2022). The impact of COVID-19 on the valuations of non-financial European firms. Heliyon, 8(6).
- Uzliawati, L., Yuliana, A., Januarsi, Y., & Santoso, M. (2018). Optimisation of capital structure and firm value.
- Wang, H. (2022). Application of Discounted Cash Flow Model in Company Valuation-A Case Study of Netflix. Paper presented at the 2022 2nd International Conference on Economic Development and Business Culture (ICEDBC 2022).
- WHO. (2020). Pneumonia of unknown cause – China. Retrieved from https://www.who.int/emergencies/disease-outbreak-news/item/2020-DON229
- Yousef, H. H., & Ojah, H. K. (2022). THE IMPACT OF FREE CASH FLOW ON THE EFFICIENCY OF INVESTMENT DECISIONS AND THEIR REFLECTION ON THE FIRM VALUE: AN APPLIED STUDY IN A SAMPLE OF IRAQI COMPANIES LISTED IN THE IRAQ STOCK EXCHANGE. World Economics and Finance Bulletin, 16, 11-20.
