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Corporate Finance – FANG Stocks
Course Name
Course Date
Student’s Name
Corporate Finance – FANG Stocks        4
Introduction
In this paper we will be analysing the valuation of the major stocks of the four major stocks which includes FANG stocks i.e. Facebook, Amazon, Netflix and Google. In this paper we will be analysing the cost of equity of the stocks through different websites and will also be evaluating its value through different financial tools to know the value of the stock. The two major aspects that needs to be considered in the stock includes the valuation by comparable and through discounted cash flow techniques.
As these companies do not pay dividends and the dividend discount method requires the company to have continuous dividend payout to calculate the dividend growth rate and cost of equity, we have used CAPM model (Capital Asset Pricing Model) to evaluate the cost of equity.
Using Yahoo! Finance, calculate or look up the (forward) P/E (price-earnings) value ratios for each of the FANG stocks. Rank the 4 companies based on their P/E ratios, explaining the possible reasons for the different ratios (please make sure to mention the company with the most valuable growth opportunity).
Price earnings ratio is one of the most commonly used common stock valuation tool which helps in analysing the company’s current market price and is compared to the company’s earnings per share. The company with high P/E ratio, states that the investors are quite positive for the stock. With high P/E ratio, the company expects to have higher growth and high return on the investment. This also tells that how much the investor is willing to pay for the stock.
    
    Facebook
    Amazon
    Netflix
    Google
    Forward P/E
    22.43
    135.62
    108.3
    46.04
Looking at the P/E ratios of all the companies we can see that Amazon has the highest P/E ratio which can depict that the Amazon has high share price as well as earnings and the investors expect high return and growth of the stock as compared to the other stocks. (Murphy, 2018)
The second highest P/E ratio is of Netflix, which also shows that the company is growing and has high returns to the investors.
After Netflix, the highest P/E ratio is of Google followed by Facebook.
Looking at the performance of these companies we can see that Amazon has recently grown to one of the biggest technology company with its wide products and services it is one of the most preferred companies of the world. The stock prices of the company has grown over the year along with the profits which shows that the investors are willing to invest in the stock as they are likely to have high returns. (Investopedia, 2018)
Netflix is also one of the booming companies which has expanded its reach by offering a wide range of online streaming of movies and television shows. The company has shown tremendous...