VALUATION OF A COMPANY WITH NEGATIVE EARNINGS: A CASE STUDY OF PT HERO SUPERMARKET TBK. (HERO)

Abstract

Abstract. Indonesia’s economy growth became slower since it reached its peak in 2011. This could be caused by the slowing down in household consumption which is the biggest contributor to the GDP. It leads to weakening in retail industry. PT. Hero Supermarket Tbk. is one of Indonesian retail firm that affected by this condition as they reported loss in 2015 and 2017. However, the author sees this case deeper than business cycle event as the slowing down has reached the fourth year and have not shown any good sign. Therefore valuation is conducted on PT Hero Supermarket to see whether the firm’s stock is currently worth buy. This firm is also considered as a special case firm with negative earnings referring to Damodaran’s paper entitled “Dark Side of Valuationâ€. Based on relative valuation, HERO stock is priced lower than the market. The low price was caused by the market pessimism. While based on the discounted free cash flow to the firm method, the intrinsic value of HERO is IDR 632 per share, while the market price was IDR 925 per share. This shows that HERO is overvalued. Based on this result, this study encourage the investors to sell HERO stock.

Keywords:  Discounted Cash Flow Valuation, Negative Earnings Valuation , Retail Industry , Relative Valuation, Damodaran