How to Value a Stock – for Average Individual Investors
There are numerous ways to value a stock to get an idea of a company’s true worth. In this article, we will consider the same "valuation analysis models" used by Wall Street analysts, Hedge Funds and other institutional investors to determine a stock’s intrinsic value.
The most popular valuation analysis models used by stock analysts today are Fundamental Analysis and Technical Analysis. Average investors can choose to use only the Fundamental Analysis approach, but note that Wall Street uses both approaches in order to provide a comprehensive picture of the true value of a stock.
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When analyzing the value of a stock it is also important to remember that a stock will not always trade around its intrinsic value due to market, economic, political and other external factors that move the overall markets. “Investor expectation” is another major factor that drives a stock’s current market price. If investors are forecasting strong growth for a particular company, they will plug their growth expectations into their valuation models (same models that we’ll be discussing here) and will likely bid up the company’s existing stock price.
The objective of this “How to Value a Stock – Investing 201” series is to help you grasp the basics of investment analysis. You should then further your knowledge about specific techniques that you wish to use before making an investment decision.
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So let's start with the basics of Fundamental Analysis.
Continue: Fundamental Analysis – How to Value a Company
Stock Valuation Series
Series 1: How to Value a Stock – for Average Individual Investors
Series 2: Fundamental Analysis – How to Value a Company
Series 3: 4 Major Valuation Ratios to Value a Stock – For Individual Investors
(By: Monty R. – MarketConsensus News Contributor)
