Question

what strategies or formulas can be used to find the valuation of a stock.

provide examples and the name of the formula.

Answer 1

there are different types of method which can be applied to find out the valuation of stock prices which are categorically listed under two type of method relative methods and absolute methods.

absolute method used to find the share price of company in isolation while the relative method used to find the share price of company with comparison to the industry and it's Peers.

Stock valuation can be found out through dividend discount model which advocates that dividend expected out of the company is discounted at present value after taking to the growth factor to arrive at present value of the company.it is a limited approach because it only consider the dividend aspect of the company because many company doesn't offer the dividend payment.

Intrinsic value method is used to find the value of the stock by discounting the free cash flow available to the firm and the present value and then comparing it with actual market price to arrive whether the stock price is undervalued or it is overvalued and then making decision accordingly. the stock price is undervalued the investment is made while if the stock price is overvalued it is decided to sell stock.

There are different types of comparative evaluation methods which can be used like profit to earning, profit to book ,then and industry average is taken and it is multiplied with company e figures to arrive at future market price.

It is to be kept in the mind price and value are two different things . Stock exchanges reflects the current market price of a company and the valuation methods helps in finding out the true value of the company then the difference is capitalised upon.