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Best Stock Valuation Method Add in library

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Question:

Whether or not it is possible for someone to develop a Stock-valuation Model that will consistently beat the market?

 

 

Answer:

There is no perfect or particular valuation model that can clearly depict the value of stocks of an entity. There are a wide number of methods available for valuing stocks. Major of them are absolute and relative valuation model. The work of absolute valuation model is to calculate the intrinsic value of any stock. This is done by having a look over the basic things such as dividends, cash flow and growth rate. Analysis is done in isolation. There are four models

 
  1. Dividend Discount
  2. Discounted Cash Flow
  3. Residual Income
  4. Asset Based

Under relative valuation method the results of more than one entity is compared with other entities. The model under this method is Price to Earnings Ratio. The outcome of one is compared with the other and then it is decided whether the company is progressing or not

The factor based on which we can apply or not a particular model on a company depends on the circumstances and the characteristics of a company. We have to identify that model which best suits the company. Further one should not stick to one particular model. Instead he or she should use more than one method in valuing stocks. This will provide a range of possible solutions and he or she can average the outcomes from different methods. (Joseph Nguyen, ND)

 

Reference:

Joseph Nguyen, ND, “How to Choose the best stock valuation method”, viewed on 26th January 2015 available at https://www.investopedia.com/articles/fundamental-analysis/11/choosing-valuation-methods.asp

Jae Jun, 2012, “How to value stocks using 7 proven valuation models” viewed on 26th January 2015 available at https://www.oldschoolvalue.com/blog/valuation-methods/valuation-matters-7-ways-value-stocks/

Stockopedia, ND, “Relative and intrinsic valuation models: 5 Key Methods” viewed on 26th January 2015 available at https://www.stockopedia.com/content/relative-and-intrinsic-stock-valuation-5-key-methods-63598/

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