Challenges and Risks

FIN/419

Stock Valuation

The purpose of this week’s group assignment is to help the team learn where to go to retrieve stock information and, once the information has been gathered, to understand how to use the information for investments. In this paper the reader will gain an understanding of how the stock market works including some information about preferred and common stocks, the connection between the value of shares and dividends, the ticker symbol and stock information for General Electric, and finally whether the group would recommend purchasing this stock.

How the Stock Market Works

The stock market is where public companies and investors sell and buy company stock. The main exchange markets in the United States are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation System (NASDAQ) for physical and virtual stock trading respectively. Stocks are traded every business day by setting the asking prices, investors will then bid on them and the highest bidder gets the stock certificate. There are two types of stock, common and preferred. Common stock is a certificate of ownership with gives the holder some voting rights, pays tax deductible dividends and has no maturity date (Brooks, 2015). Preferred stock has all the same benefits as common stock and may have a stated value, like a bond but without a maturity date. Preferred stockholders would also receive dividend and other payouts before the common stockholders (Brooks, 2015).

The Connection Between the Value of Shares and Dividends.

The value of shares and dividends relates in various ways. First, as illustrated in General Electric’s financials, the value of its shares indicates the company’s present value of its future dividends. Since General Electric pays dividends from the available resources, its value decreases; hence the value of its shares decreases by a similar amount. According to Nasdaq.com, General Electric decreased its quarterly dividends paid to 1 cent per share, back in December 2018. This decision caused GE’s stock to fall by almost 60%. Therefore, when an organization issues dividends, this may affect the value of shares in two major ways. Number one – if dividends are higher or lower than expected, the value of shares rises or falls, respectively (Matthew, Enekwe, & Mike, 2014). Number two – If the market capitalization of the business reduces, then there will be changes in price. As such, an increase in dividends is likely to cause a demand increase in the shares and, thus, the price of shares continues to rise.

Ticker Symbol & Stock Information

The ticker symbol for General Electric Company is GE. The ticker symbol is an abbreviation used to identify the shares of a company on a stock market. GE’s current stock price is $9.96 per share. According Macrotrends (2019), “General Electric revenue for the quarter ending December 31, 2018 was $33.278B, a 5.3% increase year-over-year.” The only decline in recent years for GE was a 1.03% decline in 2016. General Electric was one of the first companies to join the Dow Jones Industrial Average; it was a part of the Dow Jones for 122 years. Owens (2018), explains that on June 26, 2018, the GE’s stock was removed from the Dow Jones Industrial Average index due to having the worst performing stock on the DOW.

Recommendation on Investment

No, we would not recommend purchasing General Electric, even though GE shares have outperformed the S&P so far this year. GE is a conglomerate that deals in different area of interest such as global research, aviation and renewable energy (Bromels, 2019). While it does have diversity in its business, the last three years starting in 2017 has shown a constant downfall and 2019 is not any better so far (Bromels, 2019). GE’s last CEO John Flannery took charge in August of 2017, at this point the stock had dropped by about 20% (Bromels, 2019). When GE was at its prime, it was trading at 32$ a share and by October of 2018 it had dropped to 12$ a share (Bromels, 2019). Flannery was promptly kicked out and Larry Culp was brought in as the new CEO (Bromels, 2019). Even with a new CEO, things continued to go south, the stock dropped to a 20 year low at just 7$ a share (Bromels, 2019). What this all boils down to is that GE stock is very volatile and if you do not want the risk that goes a long with a volatile stock, we would stay away from purchasing GE stock.

Conclusion

In conclusion, the stock market is a place in which company stocks are bought and sold. Both preferred and common stocks are traded in the markets. There are many things to consider when purchasing stocks, one of which is if the company offers dividends. A company that pays dividends can be an attractive incentive to prospective investors, which in turn can drive up the price of the stock. General Electrics ticker symbol is the abbreviation of the company name, GE, and the current stock price is $9.96 per share. As for investing in the stock, the group decided that the company is not worth investing in, due to its consistent decline in stock prices.

References

Bromels, J. (2019). The Motley Fool. Retrieved from https://www.fool.com/investing/2019

/03/13/why-investors-should-expect-more-volatility-from-g.aspx

Brooks, R. (2015). Financial management: Core concepts (3rd ed.). Pearson Education.

Investing Answers (2019). Retrieved from https://investinganswers.com/financial-dictionary/financial-statement-analysis/working-capital-869

Macrotrends (2019). Retrieved from https://www.macrotrends.net/stocks/charts/GE/general-electric/revenue

Matthew, M., Enekwe, C. & Mike, A. . (2014). Effect of dividend payment on the market price of shares: A study of quoted Amazons in Nigeria. Journal of Economics and Finance, 49-62.

NASDAQ (2019). Retrieved from https://www.nasdaq.com/symbol/ge/dividend-history

Owens, J. (2018). General Electric booted from Dow Jones Industrial Average. Retrieved

from https://www.marketwatch.com/story/general-electric-booted-from-dow-jones-

industrial-average-2018-06-19