Risk-Reduction Strategy for Investing in Restaurant Stocks: A Portfolio Approach

摘要

Investors often use different assumptions when attempting to determine the value of a company, resulting in large discrepancies. Generating shareholder value in the stock market must be linked to some measure, and traditionally, this value was drivenby the longterm cash flow generating ability of a company. One of the most important and influential economic theories dealing with finance and investment is the modern portfolio theory with a key consideration to maximizing discounted or expected returns. The proposed investment strategy estimates the equity value of 10 restaurant companies from the firm's discounted cash flow and weighted average cost of capital. The values were compared to the firm's current market value, and then two investment portfolios were created. The results indicated a 75% accurate prediction rate and a 5.6% return for one group of restaurants.