Risk-reduction strategy for investing in restaurant stocks: A portfolio approach

Nelson Barber, Sean Barth, Shane Blum

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

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 driven by 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.

Original languageEnglish
Pages (from-to)33-46
Number of pages14
JournalJournal of Foodservice Business Research
Volume14
Issue number1
DOIs
StatePublished - Jan 2011

Keywords

  • Cash flow
  • Restaurants
  • Valuation

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