Investment Psychology: Evaluating Financial Viability of Stocks

This article evaluates the financial viability of stocks of PepsiCo, Netflix, and Tesla Motors Inc. through financial ratios and competitor analysis. It also discusses the investment scope and future prices of these stocks.

Running head: INVESTMENT PSYCHOLOGY
Investment Psychology
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Introduction:...............................................................................................................................2
Answer of question 1:................................................................................................................2
Answer of question 2:................................................................................................................2
Answer of question 3:................................................................................................................4
Answer of question 4:................................................................................................................4
Answer of question 5:................................................................................................................6
Conclusion:................................................................................................................................6
Reference and Bibliography:......................................................................................................7

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Introduction:
PepsiCo, Inc, Netflix, Inc, and Tesla Motors Inc is mainly identified as the overall
stocks, which will be evaluated to identify its financial viability and detect investment scope.
In addition, the adequate financial ratios are calculated to identify current position of the
company and the risk involved in Investments.
Answer of question 1:
The companies selected from the portfolio are PepsiCo, Inc, Netflix, Inc, and Tesla
Motors Inc, which would be further research to identify the investment scope in the company.
the selected stocks are relevantly diversified, as the industry of chosen companies ranges
from entertainment, beverages and automobile. The diversification is relatively high, as the
companies does not fall under the same industry, which helps in spreading the risk from
investment. The further research on the company would eventually help in identifying its
current position and future scope, which is essential for continuing investing in the selected
stocks (Lan, Lin and Lin 2015).
Answer of question 2:
Financial ratios are evaluated as follows for the selected companies.
PepsiCo, Inc:
PepsiCo, Inc 2015 2016 2017
Operating Margin 13.25% 15.58% 16.54%
Debt/Equity 2.46 2.67 3.06
Quick Ratio 1.05 1.08 1.29
Gross Margin 54.44% 55.08% 54`69%

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The overall financial ratios of PepsiCo mainly depict the Company's financial strength
which has improved over the fiscal years. the increment in operating margin and gross
margin mainly state the financial capability of the organization to generate higher returns
from its operations. Moreover, the quick ratio of the company has improved radically from
1.05 to 1.29. However, the depth to equity ratio has a relatively increased in three fiscal
years, which increases the concern regarding insolvency (Reuters.com 2018).
Netflix, Inc:
Netflix, Inc 2015 2016 2017
Operating Margin 4.51% 4.30% 7.17%
Debt/Equity 1.07 1.26 1.81
Gross Margin 32.27% 31.72% 34.49%
Quick Ratio 0.65 0.38 0.52
The financial ratios of Netflix indicate the increasing stability of the organization in
achieving higher returns from investment. However, the quick ratio has declined, while the
debt to equity ratio has increased, which indicate the deteriorating financial position of the
organization in the three fiscal years (Reuters.com 2018).
Tesla Motors Inc:
Tesla Motors Inc 2015 2016 2017
Quick Ratio 0.48 0.67 0.51
Operating Margin -17.71% -9.53% -13.88%

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Debt/Equity 1.91 1.26 2.22
Gross Margin 22.82% 22.85% 18.90%
The financial position of Tesla Motors has a relatively indicated the deteriorating
condition of the company over the period of three fiscal years. The financial ratios such as
operating margin, gross margin and quick ratio as a relatively deteriorated over the period of
the analysis, which indicates the rising problems of the organization. The rising debt to equity
ratio also adds on to the deterioration in financial position of the company (Reuters.com
2018).
Answer of question 3:
The selection of stocks is relatively based on Instinct, as companies that are chosen
for investment is the market leader of their segment. The emotional level is relatively used for
selecting the stocks such as Tesla Motors for investment, who is incurring losses in their
operations. Due to the emotional decision the overall investment risk in the portfolio is
relatively increased, as Tesla motor Inc’s financial position has relatively deteriorated over
the period. Investment was conducted on the basis of instinct rather than logical conditioning,
where the aim was to maximize returns from companies that are market leader in their sector.
Some of the researchers mentioned that maximum of the investors relies on trend to identify
investment opportunity, which is mainly seen by companies that have adequate market cap in
the capital market (Gottschlich and Hinz 2014).
Answer of question 4:
The evaluation of competitor’s position against the company is conducted as follows.

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PepsiCo, Inc:
CompanyName Market Cap Close price P/E-Ratio
Pepsico, Inc. 155,139,148 $
109.26
32.42
National Beverage Corp. 4,113,244 $
88.25
28.93
The competitive condition of PepsiCo can be identified from the above table, which
depicts the overall rising competitive edge of the Company against its peers. the market cap,
close price, and P/E ratio of the company is relatively higher than its competitor, which
depicts the demand among potential investors (Reuters.com 2018).
Netflix, Inc:
CompanyName Market Cap Close price P/E-Ratio
Netflix, Inc. 127,428,830 $ 293.65 234.92
Best Buy Co., Inc. 20,084,003 $ 71.04 21.66
From the evaluation Netflix is detected to have the highest competitive edge against
peers, as the close price, market cap, and P/E ratio of the organization is relatively higher
than its competitors. This rising competitive edge is making Netflix the market leader in the
entertainment sector of US (Reuters.com 2018).
Tesla Motors Inc:
CompanyName Market Cap Close price P/E-Ratio
Tesla, Inc. 51,311,139 $ 303.76 N/E

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Toyota Motor Corp Ltd Ord 2,993,076 $ 127.80 8.94
From the overall evaluation the P ratio of Tesla Inc is relatively not present in the
current data of Nasdaq, which is due to the losses incurred by the organization. However, the
competitiveness of the company has not deteriorated against its competitors, as the market
cap and close price of Tesla Inc is relatively higher than Toyota Motor Corp. This relatively
indicates that the competitiveness of Tesla is a relatively high, as they have the maximum
share value in comparison to its competitors (Reuters.com 2018).
Answer of question 5:
CompanyName Close price 52 Weeks High-Low
Pepsico, Inc. $ 109.260 $ 122.51/$ 105.938
Netflix, Inc. $ 293.650 $ 333.98/$ 138.66
Tesla, Inc. $ 303.76 $ 389.61/$ 244.5901
From the evaluation of above table relevant future prices of the organizations can be
identified, as maximum of the stocks are not close to the 52 weeks high. This relatively
indicates the possibility of rising prices, which could increase over the period of investment.
Companies such as PepsiCo, Inc, Netflix, Inc, and Tesla Motors Inc are mainly evaluated
from the above table, whose share prices relatively low. The detection of 52 weeks high and
52 weeks low mainly allows investors to understand the trend of a particular stock, which
would eventually help in making adequate investment decisions (Lin, Huang and Tseng
2017). Therefore, from the evaluation of above table it could be identified that there is
adequate scope Investments in PepsiCo, Inc, Netflix, Inc, and Tesla Motors Inc.

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Conclusion:
The assessment mainly analyses the share price movement of PepsiCo, Inc, Netflix,
Inc, and Tesla Motors Inc. which could eventually help in identifying the investment scope in
these stocks. The ratio evaluation directly helps in detecting the investment scope of the
selected company, which could eventually help in generating higher returns from investment.
Reference and Bibliography:
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Indicator for Stock Investment in Bursa Malaysia. Terengganu International Finance and
Economics Journal (TIFEJ), 2(2), pp.94-102.
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He, L.M., Chen, S.D., Zhang, Z., Hu, Y. and Jiang, H.Y., 2016. A Decision Tree Model for
Meta-Investment Strategy of Stock Based on Sector Rotating. In FSDM (pp. 194-207).
Lan, Y.W., Lin, D. and Lin, L., 2015. Cointegration analysis of tourism demand by Mainland
China in Taiwan and stock investment strategy. Journal of Economic & Financial
Studies, 3(05), pp.01-09.

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