Auckland Uni boffins use AI to measure a company's value

Researchers from the University of Auckland are attempting to leverage AI to get a better idea of the true value of companies based on factors including profitability, growth and risk.

The researchers have published a paper in the Journal of Accounting Research which argues that machine-learning algorithms can provide more accurate valuations of stocks than traditional methods.

The method developed by the researchers is capable of identifying stocks as undervalued, which tend to rise in price, and helping professionals identify peer firms to benchmark their company’s performance against.

Report co-author Dr Helen Lu of the University of Auckland Business School said traditional methods of determining the value of a company involve many subjective choices, and can therefore be heavily influenced by human bias. “Meanwhile, the process of determining which businesses are industry peers can also be influenced by bias,” she said.

“Say if it’s a software company being valued, industry professionals typically look for peer firms in the technology industry and ideally find a few that also offer similar products, but the process is quite subjective,” Lu said.

“Because what exactly is the ‘tech industry’, and how do you clearly determine whether some companies are comparable or not? Perhaps we should also consider pricing power and growth potential? Skilled professionals often follow a ‘hunch’ which can be influenced by personal biases.”

Using tree-based machine-learning models can instead automatically assign organisations to different ‘leaves’ using firm fundamentals, she said.

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