THE STOCK RETURN PREDICTABILITY: COMPARING P/E AND EV/EBITDA

Year 2017, Volume: 4 Issue: 3, 262 - 274, 30.09.2017

Yuksel Iltas , Halil Arslan , Temur Kayhan

https://doi.org/10.17261/Pressacademia.2017.694

Abstract

Purpose – The aim of
this work is to pinpoint the association between stock retuns and financial
dynamics, market dynamics and regional and firm-specific uncertainties. While
dividend yield, P/E, EV/EBITDA, P/B, Investment Ratio, Leverage, Intangible
Assets, Topline Growth, Country Risk, Standard Deviation, Geopolitical
Uncertainties, and Liquidity are taken into consideration as factors affecting
stock returuns, lagged value of dependent variable is also accepted as
independent variable.      

Methodology-  All the equations are figured out
by Generalized Method of Moments (GMM) while 2.549 data of 204 companies from
24 sectors traded at BİST between 1998-2014 are used in the study.

Findings- According to
the outcomes of the model, the rise in Expected Dividend Yield, Investment
Ratio, Sales Growth and Liquidity influence positively stock returns, whereas the
uptrend in geopolitical risks, country risks, company specific risks and
intangible investments affect the stock returns negatively. The decline in P/E
and EV/EBITDA increases stock returns.

Conclusion- In addition
to the increase in net profit, investment, dividend and sales, firms can ramp
up their corporate value by using liquidity provider operations and augmenting
free float ratios, and they can leverage the value in their operational
activities. Also, while investors pay close attention to P/E and EV/EBITDA
multiples simultaneously, investment maturity of them are about 1 year.

Keywords

P/E, EV/EBITDA, stock return, liquidity, dividend yield

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