I am trying to calaculate the present value of UNDER ARMOUR (UA) common stock. T

Question

I am trying to calaculate the present value of UNDER ARMOUR (UA) common stock. The current stock price is $20.02. I am confused because UA stock does not issue a dividend, ever. Am I to assume that it is impossible to calculate a present value of a stock that does not pay a dividend ? I am to assume that this cannot be calculated on a stock that does not pay dividends?

"The valuation of common stock involves bringing future payments back to the present at the appropriate discount factor. The discount factor is the required rate of return. Thus, the valuation involves discounting future cash flows (divi- dends) back to the present at the investor’s required rate of return. The present value is then compared with the current price to determine if the stock is a good purchase. (Mayo 248)

Mayo, Herbert B. Basic Finance: An Introduction to Financial Institutions, Investments, and Management, 11th Edition. Cengage Learning, 20150123. VitalBook file.

Explanation / Answer

The Valuation of stock that doesnot pay dividend can be done using other method Like Free Cash flow method or resdual incime method. In these case Free cash flow or resdual income is discounted back to the present date at required rate of retrurn and then compared with the current Price.

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