Stock Valuation Analysis

Description

Key Financial Ratios and Relative Stock Valuation Metrics: Turn numbers from financial statements into ratios (relationships) both internal and in comparison to Peers in Industry. How does your company look compared to similar cos? What is an acceptable ratio? Apply Discounted Dividend or Cash Flow model todetermine fair value (price). Difficult because of assumptions of future growth rates and terminal value. RELATIVE VALUE QUANTITATIVE METRICS: most popular is P/E (Price to Earnings) stock market as whole has averaged around 15x-18x historically. What is current P/E (trailing or forward)? What is the standardized average over time for this company, Others in Industry?, and the entire stock market? Highgrowth justifies higher P/E and low interest rates (discount rate) also has positive impact on P/E. More stable firm with more predictable earnings has lower and less volatile P/E. Better measure is PEG (Stock Price/Earnings growth rate). Other measures used are Price/Sales or Price/Book, but must be careful to understand nature of Business Service business has less fixed assets, and large value in its employees that do not appear on Balance Sheet. QUALITATIVE METRICS such as; Management, Moat, Competitive Advantage are also important is valuation of business. When you do your stock valuation, you are using all info you can gather to establish a fair price. Once you get an estimate of reasonable price, how does it compare to current market pricier? Is it fairly valued, or Over, or Under? You should look at example project analysis to see what a good project looks like. In doing your analysis and write-up, make sure yougive proper credit (attribution) to the source of your info. You can find info by putting your stock name or symbol into your search engine and you will find several sources of financial info (ratios) and analysts estimates and recommendations ( such as Marketwatch or others listed on your project direction sheet).What is the consensus of earnings and price from financial analysts community. Given the uncertainty that exists today, the risk is greater and the ability to forecast is a greater challenge. Going through the process is a valuable exercise to help you understand the variables that impact a stock’s FAIR PRICE