Comparison of Share Prices in 2015 and 2016 of Easy Jet

Analyzing the company’s performance and stock valuation is a tremendous undertaking. This is due to the fact that there are variables that impact the component of the firm’s stock prices, and thus market behavior is also unclear. The study serves as the foundation for stockholders’ judgement of whether to buy or sell the shares in the best interests of the company. The decision cannot be made without first doing a financial analysis and examining the firm’s stock performance. According to the report attached, the document gives an in-depth review of Easy Jet stock prices and securities in 2015 and 2016. Using the discounted cash flow model, the prices of the stock are 2.08 in the case of Easy Jet. The values indicate that the stocks are under revalued. It is specified by the decrease in the valuation model used and the element of risks incorporated in the model. The actual stock price is 10.17 for the Ease Jet. The difference in the stock prices is attributed to the discounted rate used for the analysis. In order to determine the conceptual framework for the analysis, the model must be applied consistently to estimate the appropriate prices under the different discounted rate.

The investment in the Easy Jet Company would be highly risky despite having a good positive return on investing in the shares. The beta, the degree of risk measurement for the Easy jet is 1. Other parameters for assessment of Easy jet that indicates improvement in the performance include the profit margin and free cash flow among others.

To determine whether or not to buy or sell the stock in the analysis, the risk profile in the analysis and the feasibility of the stock option in Ease Jet. The option to hold the stock for a year or not and sell them a year later.

Assuming the Ease Jet stock was bought in 2014 and sold in 2015, the stock price will grow with the growth rate of 4 percent. The stock price will be sold at an appreciated price. Similarly, the projected stock price using the growth rate of 4%, the price of the stock a year later will be $14 multiplied by the discounted rate to determine the future value of the stock. The stock value was $14.56.

Calculation for Ease Jet:

Assuming the rate of return used is 4%

The price of the Ease Jet Stock =$ 9.27

Holding the stock for a year to determine the appropriate method to use will be using the present value of the stock at 4% for a year. The Future value, FV of the stock is 9.27(1.04)1 =$9.64. The benefit the stock will have generate in the next one year will be (9.64-9.27) = $ 0.37.

This implies that holding the stock in and selling them a year later is the most efficient and feasible option to use since in both cases the annual growth rate of 4 percent would guarantee a feasible return on investment on the stock portfolios. Therefore, the decision to use the buy the stock is influenced by the nature of the stock and the demand as well as the risk factor. When shares are used as collateral for the loan, and they are held for one year the value of the shares in the overvalued company Ease Jet is determined by the rate used and the share prices since time is held constant.

The long-term debt for Ease Jet was $1352; the number of shares to be used as collateral in the current year is determined by dividing the value of the stock used for securing the loan by the share prices. In this case, the number of shares is 1352/14 =96.57 (97 shares to the nearest whole number).Therefore, the appropriate decision is to hold the shares for a given year and use it to as security for the loan. Since the number of shares used for the security will be minimal.

Comparison of Share Prices in 2015 and 2016

In 2015, the share price for the Ease Jet in 2015 was 10.14. It implies that the prices the prevailing price the stock can be sold on the market in 2016 was equally good. In 2016 the share prices for Ease Jet and Ryanair was $9.64 and $14.56.The increment is attributed to the value of the rate of return. The basis of share comparison depends on the share prices and the risk aspect of the security.

The Direction of Evolution of Share Prices

The nature of the direction of the evolution of stock prices depends on the degree of risk as well as the return. If the share prices increase but the rate of return increases, then the future value of the stock prices in the subsequent years in Ease Jet. Conversely, if the risk returns rate decreases in all the company, then the anticipated prices for the share will also reduce. The reduction in the share prices may have an adverse impact on the Price earnings ratio and the earnings per share for the investors and the company in general. When the prices of the stock go up, then for the overvalued company, the best strategy to be employed by the buying company is to wait for the price to reduce so that they can be purchased and sold when the prices of the stocks are relatively higher. If the Ease Jet stock prices is anticipating increasing in future and the investors are confident that the share prices of Ease Jet would increase, and then they will sell their shares to obtain maximum return.

Additionally, none of the investors in the two companies would be willing to sell their shares to expect a lower return. It would be contrary to the profit maximization objective. The earnings per share attributed to the changes in the stock prices in 2015 and 2016 is computed as follows:

Ease Jet net earnings 189924

Total Earning 2246363

The EPS 189924/224636 =0.084

P/E 10.17/0.084 =120.3

The price-earnings ratio for the company’s stock is fairly good; it shows the market is willing to pay $120.3 according to its current earning.

In conclusion, the determination of the stock prices for the company using different alternative depends on the general decision criterion to be used as well as the objective of the company. The assessment of the performance of the Ease Jet should be focused on almost all the parameters of performance so that each weakness is addressed and solve in time.