Uncovering Stock Price Anomalies: A Sectoral Study of the Finnish Stock Market

Abstract

Stock markets all over the world function in a complex and dynamic environment where theoretical valuations often differ from market prices. Motivation for the thesis derives from the need to better understand how theoretical valuation methods perform when applied to real-life scenarios. Valuation anomalies were explored across six key sectors by analyzing 28 publicly traded companies in the Finnish stock market, highlighting the gaps between intrinsic and market values. Discounted Cash Flow (DCF) and relative valuation methods, including EV/EBITDA, EV/Sales, and P/E multiples, were applied to identify sector-specific trends and the factors influencing these anomalies. Data from Refinitiv Eikon, MarketScreener, Vara Research, Inderes, and official company reports, covering the period from 2018 to 2023, were combined with forward-looking estimates for 2024. The analysis incorporated key financial metrics, such as revenue, EBIT, and Weighted Average Cost of Capital (WACC) components, to ensure robust and accurate valuations. A Microsoft Excel-based valuation model facilitated scenario analysis, bridging theoretical valuation techniques with practical applications. The findings revealed significant valuation anomalies across sectors, influenced by differences in WACC components, valuation model sensitivity, and sector-specific risk perceptions. While lower discount rates generally aligned with higher theoretical valuations, the relationship was not consistent across all sectors, highlighting the complexity of valuation discrepancies. Cyclical sectors, such as Industrials and Basic Materials, exhibited notable valuation anomalies, though some of the largest deviations were found in Consumer Cyclicals and Consumer Non-Cyclicals. While sector cyclicality was expected to explain valuation dispersion, the results suggest that other factors, such as discount rate assumptions and market sentiment, also contributed to these differences. The results underline the importance of tailoring valuation models to sector-specific characteristics, as uniform assumptions can produce misleading outcomes. In addition to identifying valuation anomalies, this study also provided a detailed demonstration of how DCF and comps valuation methods are applied in the Finnish stock market, offering insights into both their practical applications and limitations.