The Volkswagen emissions cheating scandal has led to 40% of its market capitalization being wiped off. Is this then a good time to buy the stock? Aswath Damodaran tries to answer this question in his latest video and blog.
Damodaran asks the Goldilocks question : Has the market punishment meted out to the stock too less? Have the fears been overblown? Or has the market reacted in a way which can be deemed as just right?
Prof. Damodaran uses a 2 step process - 1) First, he finds the pre-scandal valuation of the company 2) The post-scandal valuation factoring the various costs - Fines/Penalties, Costs of Recall and Legal Costs, Loss in Sales.
Damodaran uses the Toyota gas pedal controversy in 2009 to arrive at the estimates of the potential costs to Volkswagen.
Without revealing what the final answer is, we encourage you to watch this video. You can also download the various links below the video to aid your own valuation exercise.
Slides: http://www.stern.nyu.edu/~adamodar/pd...
Pre scandal valuation: http://www.stern.nyu.edu/~adamodar/pc...
Post scandal valuation: http://www.stern.nyu.edu/~adamodar/pc...
