Aviation Related Stock, Revisit (Part I)

In a previous article dated 8 June 2018 (Read more here), SAM Engineering stock prices for 2019 to 2021 were forecasted using Monte Carlo simulation.  The forecasted median price was around RM6 while the forecasted min and max price were around RM4 and RM8 respectively.   In fact, SAM Engineering hit RM8.64 in 2019 and plunged to RM4.20 during the Covid-19 pandemic sell-off in March 2020.  Figure 1 shows the forecasted and the actual price range for SAM Engineering.

The Monte Carlo model is known for predicting extreme outcome.  In the long run, the stock price is believed to revert to mean (or median).  As such, after the huge price drop, SAM Engineering is trading around RM5.82 as at 30 April 2020. 

Figure 1: Monte Carlo Forecast vs Actual

  

The next question to ask is – the forecasted price range still hold?  While it appears that the price is reverting to mean (or median), this could be just the market have yet to come up with new forecast model as many argued that in such a volatile market, there are just too many uncertainties.

However, as the valuation guru Prof Aswath Damodaran said (Read more here),

“I know that that you are trying to make a judgment call in a period of incredible volatility, where no one (managers, analysts, governments) know what is coming, but your reasoned guess is as good as anyone's estimate. So, be bold, make your best estimate and move on!”

Thus, a post-Covid19 Monte Carlo model will be designed to incorporate the impact of the pandemic such as volatility, earnings; the shape and the duration of economy recovery.  It will be covered in Part II of this series.

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Disclaimer:  The above analysis does not imply any buy or sell recommendation.  The author disclaims all liabilities arising from any use of the information contained in this article.

Disclosure: The author may have interest in the stocks of the companies in this article.