6 Types of Stock Valuation Approaches for Investors!!
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1) Intrinsic Value Approach / Absolute Valuation
This method focuses on determining the true value of a stock based on the company's financials. Popular models include the Discounted Cash Flow (DCF) model, which forecasts future cash flows & discounts them to present value.
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This method focuses on determining the true value of a stock based on the company's financials. Popular models include the Discounted Cash Flow (DCF) model, which forecasts future cash flows & discounts them to present value.
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2) Relative Valuation Approach
Here, stocks are compared to their competitors or industry benchmarks. Common ratios include Price-to-Earnings (P/E), Price-to-Book (P/B), & Price-to-Sales (P/S). Helps gauge if a stock is under or overvalued relative to the market.
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Here, stocks are compared to their competitors or industry benchmarks. Common ratios include Price-to-Earnings (P/E), Price-to-Book (P/B), & Price-to-Sales (P/S). Helps gauge if a stock is under or overvalued relative to the market.
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3) Dividend Discount Model (DDM)
Ideal for dividend-paying stocks. The valuation is based on the present value of expected future dividends. It assumes the company’s dividends will grow at a consistent rate. This appraoch can’t be used for non-dividend paying stocks.
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Ideal for dividend-paying stocks. The valuation is based on the present value of expected future dividends. It assumes the company’s dividends will grow at a consistent rate. This appraoch can’t be used for non-dividend paying stocks.
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4) Asset-Based Valuation
This approach looks at the value of a company's assets minus liabilities. Best for companies with significant tangible assets like manufacturing firms.
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This approach looks at the value of a company's assets minus liabilities. Best for companies with significant tangible assets like manufacturing firms.
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5) Earnings Growth Models
Most commonly used approach in the market. It focuses on projecting the company's future earnings growth. Models like PEG Ratio (Price/Earnings to Growth) adjust the P/E ratio for expected growth, helping assess valuation with future growth in mind.
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Most commonly used approach in the market. It focuses on projecting the company's future earnings growth. Models like PEG Ratio (Price/Earnings to Growth) adjust the P/E ratio for expected growth, helping assess valuation with future growth in mind.
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6) Market Capitalization or EV Approach
Simple yet effective. It’s the total market value of a company's outstanding shares. Useful for comparing the size and potential of companies.
Which method suits you? Comment Below!!
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Simple yet effective. It’s the total market value of a company's outstanding shares. Useful for comparing the size and potential of companies.
Which method suits you? Comment Below!!
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🚀Click Here: portal.tradebrains.in
Whether you’re a novice or experienced, these reports are your go-to guide for finding the best investment opportunities.
(8/8)
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