Discover 8 of the Best Stock Valuation Methods to Value Any Stock
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STOCK VALUATION TYPE
Balance sheet and tangible asset stock valuation
WHEN TO USE
Liquidation valuation, net net stocks, and when trying to determine the stock price relative to a stock's net assets. Does not work well for service or low asset companies such as software.
DESCRIPTION
When Ben Graham was around, the main types of businesses that existed were industrial businesses. Mainly factories, manufacturers and retailers. There were no consulting, software, or high tech companies you see today. He would analyze the balance sheet and invest in stocks with high tangible assets as it protected the downside.
STOCK VALUATION TYPE
Balance sheet and tangible asset stock valuationd
WHEN TO USE
Cyclical companies, volatile cash flows, growth stocks, and young companies investing in growth.
DESCRIPTION
Ben Graham was a balance sheet investor first and foremost, but he created this formula to simulate growth investing with value investing principles.
STOCK VALUATION TYPE
Cash flow stock valuation by predicting future cash flows
WHEN TO USE
Companies with consistent free cash flow, predictable companies.
DESCRIPTION
It has its weaknesses and advantages which is discussed in the link below, but overall, it is a highly effective stock valuation method to value predictable companies. Making realistic projections to test a range of valuation scenarios is key.
4.) REVERSE DCF
STOCK VALUATION TYPE
Determining the market expectation by doing a DCF in reverse
WHEN TO USE
Any situation when you want to figure out what the market is expecting from the stock.
DESCRIPTION
A backwards stock valuation to find what the market is expecting from the stock.Instead of entering the future growth rate, the goal is to find out what the market is expecting the stock to achieve.
STOCK VALUATION TYPE
PE Multiples based on fundamentals
WHEN TO USE
Companies with positive earnings
DESCRIPTION
Instead of basing your stock valuation on what a competitor is being valued as the benchmark, the multiple is calculated based on the business fundamentals. Created by Vitaliy Katsenelson, author of ACTIVE VALUE INVESTING.
STOCK VALUATION TYPE
Multiples valuation using income statement assumptions
WHEN TO USE
All stocks with positive Earnings Before Interest and Tax
DESCRIPTION
Used by many on Wall Street and a good back of the envelope stock valuation method. It has the advantage of being simple and concise. EBIT is the main driver of the valuation which makes it applicable for all companies.
STOCK VALUATION TYPE
Multiples valuation using income statement assumptions
WHEN TO USE
Calculate asset value by making adjustments to the balance sheet. Also used to see how much a competitor would have to spend in order to replicate the company's business.
DESCRIPTION
In a way, this is a health and moat test. If the value of the balance sheet after making adjustments is strong, the company is protected by its assets. This value makes it easy to identify the floor for the stock.
If the asset reproduction value is high, then new entrants will have difficulty entering the market.
STOCK VALUATION TYPE
Income statement adjustments for earnings
WHEN TO USE
For all companies but even better for cyclical, volatile, and young companies.
DESCRIPTION
This stock valuation method is best used in conjunction with the Asset Reproduction Value method. It is a technique for valuing stocks by making an assumption about the sustainability of current earnings and the cost of capital.The version used at old school value does not factor in any growth.
I Use These 3 Valuation Methods Daily to Fatten My Portfolio
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