Pdco Company Financial Analysis

My valuation of Patterson Companies (PDCO), based on the average projected growth rate, estimated a price of $38.86, as opposed to the actual price of $40.51. The estimated price of $38.86 suggests PDCO is slightly overvalued, and before considering purchasing the stock, one should analyze recent developments within the industry that resulted in an optimistic market. In addition, the regression numbers from part two of the project resulted in an even lower valuation of $36.21.

One possible reason for the lower regression valuation number could be that my regression forecasted sales were more gently predicted than the analysts’ projected sales for the next ten years. Therefore, my regression model was not useful when predicting cash flows and the stock price of PDCO.

My average growth rate analysis also resulted in a slightly inaccurate calculated stock price. The inaccuracy is probably due to the wide range of growth rates and varying percentages. For my analysis, I used five different sources: Yahoo Finance, MSN Money, CNN Money, Morningstar, and Hoovers. My growth rates varied widely from 3.2 to 11.73 percent, and I was concerned with the future growth of my company. However, if I use a higher growth rate by eliminating the lowest value to obtain higher forecasted sales, the calculated value would be closer to the actual price.

Moreover, the difference between the stock prices could be attributed to the large growth of net sales during 2014. In other words, the most recent year on record, 2014, was not fairly representative of the previous years. According to the balance sheet, sales steadily increased from 2010 to 2013, but suddenly had a huge rise in 2014 that peaked at 4063.72 million dollars. As a result, sales in 2014 were almost 426 million dollars higher than in 2013. The unusual sales in 2014 could have created a confused average growth rate based on projected and historical growth. Also, even though long-term debt remain flat at 725 million, the amount of cash and short-term investments throughout the 5-year period varied significantly. The level of cash increased from 341 million in 2010 to 574 million in 2012, and decreased to 306 million in 2014. Which was a drastic decrease as compared with 505 million at the end of 2013. As the calculation of the stock price involved cash, this variation certainly affected my calculated stock valuation.  

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