How to Value Stocks
Stock Valuation is sometimes seen as a very arcane and difficult art. In fact most investors just don't even bother, figuring that its better to just compare stocks relative to their peer group to figure out what is normal and thus what is cheap. While this 'relative valuation' technique can work well in normal market climates, it also can lead to disaster as discovered by millions of investors as the dotcom bubble burst sending nosebleed stock valuations crashing back to earth.
The other form of valuing stocks is known as 'intrinsic valuation' - a broad term that encompasses several methods some of which have guided Warren Buffett to his fortune. Remarkably these techniques only require basic GCSE mathematics in calculations but are practiced by a fraction of the investing public. There are even some handy shorthands that bring the maths down to basic algebra so there really is no excuse!
If you want to value your stocks, or debunk the valuations of glamour stocks in the market read on with some of the best articles from Stockopedia and our Contributors:
Getting Started in Stock Valuation
Valuation is, of course, fundamental to investing. Knowing what an asset is worth and the drivers of value is a pre-requisite for intelligent investing (as opposed to speculation). In general, there are two basic methods for valuing stocks. One approach is relative valuation, which compares a stock's valuation level based on multiples like the Price Earnings ratio with those of…
Further Reading in Stock Valuation
Earnings Power Value also known as just Earnings Power is a valuation technique popularised by…
Those of you grappling with perhaps the most difficult investing challenge of all, valuation, might…
What is a DCF Valuation? Discounted cash flow (DCF) analysis is a method of valuing…
Unless you're a deep value / bargain investor focused on buying £1 worth of assets…
With the art of picking lowly valued stocks playing such a central role in any…
How you can Value Stocks without spreadsheets!
Valuing stocks doesn't have to be difficult. We have created a series of calculators for our premium subscribers which allow quick valuation models to be built and shared for any stock in the market. Find them at the following links.
- Ben Graham 'Rule of Thumb' Valuation Calculator
- Discounted Cashflow Valuation Calculator
- Earnings Power Value Calculator
- Relative Peer Group Valuation
- Net Current Asset Value 'Liquidation' Calculator
Using Valuation in Reverse
Warren Buffett has been famously quoted as saying that students of the market only need…
Even Further Reading!
If you need more information on stock valuation, you can find more information in the following recommended books.
