Question

can someone paraphrase this please?

Stock valuation methods

There are several methods for valuing a company or its stock, each with its own strengths and weaknesses. There's no one method that's best suited for every situation. Each stock is different, and each industry or sector has unique characteristics that may require multiple valuation methods. Some models try to find a company's intrinsic value based on its own financial statements and projects, while others use relative valuation against competitors/peers. For companies that pay dividends, a discount model like the Gordon growth model is often simple and reliable - but many companies do not pay dividends. A multiples approach may be employed to make comparative evaluations of a company's value in the market against its competitors or the broader market. When choosing a valuation method, the investor needs to ensure that the particular method is appropriate for the firm under consideration.

Stock valuation methods can be primarily categorized into two main types: absolute and relative.

Absolute stock valuation is based upon the company’s fundamental information. The method generally involves the analysis of various financial information that can be derived from a company’s financial statements. Many techniques of absolute stock valuation primarily investigate the company’s cash flows, dividends, and growth rates. Notable absolute stock valuation methods are:- dividend discount model (DDM) and the discounted cash flow model (DCF).

Answer 1

There are various method for valuation of stock and they could be suitable for different kind of companies which are based upon the the different factors.

The companies who are paying appropriate dividend needs to be valued using dividend discount model and the companies which are not paying dividend would be value through comparative evaluation methods which will include multiple analysis.

Absolute valuation method is based upon the company's fundamentals where as a relative valuation method is based on comparison of the companies multiples to the industry or its peers.

This valuation methods will be helpful in determination of the value of the company based upon various factors and they would be summarised into two different heads which will be absolute and relative valuation method.

Absolute valuation method will take into account the cash flows of the company and dividend and growth rates of the company where as the relative valuation method will always be comparing the company's multiple with the industry.