How to value stocks using 4 basic investing elements?

by Valuation Master Class Valuation Master Class

Stock evaluation and investment is an integral part of the investor’s job. A financial analyst who knows how to value stocks more accurately is invaluable for a company. There are major investment sectors where an expert analyst plays a crucial role in determining the fate of the organization.

There are four essential elements of stock investment and fixed asset valuation that are quite useful for investors. These are used for breaking down a stock’s value. Let’s discuss them down below:

1.     P/B ratio – The Price-to-Book ratio requires accurate assessment on the part of the investor for it is to be considered useful. P/B ratio is nothing but a real assessment or value of the company in case it is sold today. For most firms, the book value includes buildings, equipment, properties, bonds and any other real asset that can be sold. Because these are physical assets whose value fluctuates in the market so lower the P/B ratio, the better it is for a company.

2.     P/E ratio – The Price-to-Earnings ratio is a prediction on the part of the investor which ensures how long a stock that goes up in value will stay there. Without earnings, the stock will eventually fall back down. The investors predict which stock will have more progressive earnings before investing into it. Here, the P/E ratios must only be compared among companies in a similar industry.

3.     PEG ratio – The price to earnings growth ratio is a fair investment element that divides P/E ratio of the company by the yearly growth rate of its earnings. Just like the P/E ratio, the PEG ratio must also be lower in order to remain ideal for the company. It showcases how much you are paying for the growth. PEG ratio is like a graph that plots where the company has been. This helps an investor to look into it & decide whether they would like to continue in the same direction or not.

4.     Dividend Yield – The last element for stock valuation is the Dividend Yield. It shows the payday that you are getting for the money. It is a crucial factor that helps investors make a wise decision on whether to invest in a particular company’s stock or not. Because dividend yield varies with the industry, the investor must have a thorough knowledge before calculating it.

These are the four key elements essential for a fixed asset valuation by the investors.

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Created on Nov 19th 2018 06:25. Viewed 202 times.


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