STOCK VALUATOR
Have you heard of the word Fair Value (FV) of a stock? Probably you have heard about it because you are investing in the stock market but you were wondering about its formula or how a stock is being valuated.
If you try to search in the internet, you would find a lot of articles about stock valuation but you won't see a general or standard formula (that is agreed by all and globally used like for example: Area of a Triangle = 1/2 BH). Why, because valuation or the fair value is set by an analyst or by consensus of analysts based on their personal opinions + fundamental factors.
On this post, I wanna share the Stock Valuator that I have created for valuating a stock based on my personal opinion (in a mathematical way) and financial ratios.
Click Here or the picture below if you like to try it.
CRITERIA on WEIGHTED VALUATION
UNDERVALUED < 1.0
provided P/B & P/S ratios are both less than 1.25 and P/E ratio is less than 12
OVERVALUED > 2.0
provided P/B & P/S ratios are both more than 1.75 and P/E ratio is more than 25
Market Capitalization
It is used by the investment community in ranking the size of companies, as opposed to sales or total asset figures.
EPS
Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, serving as an indicator of the company’s profitability.
Return On Equity (ROE)
The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.
Price/Earnings (P/E) Ratio
The smaller the ratio (roughly less than 15) is thought to be a better investment since the investor is paying less per amount of earnings. More than 30 is considered overvalued.
Price/Book (P/B) Ratio
The smaller the ratio (roughly less than 1.0) is thought to be a better investment since the investor is paying less for what would be left if the company went bankrupt immediatley. More than 2 is considered overvalued.
Price/Sales (P/S) Ratio
The smaller the ratio (roughly less than 1.0) is thought to be a better investment since the investor is paying less for each unit of sales. More than 2 is considered overvalued.
Debt/Equity (D/E) Ratio
If the cost of debt becomes too much for the company to handle, it can even lead to bankruptcy, which would leave shareholders with nothing. Thus, the smaller the ratio (roughly less than 1.0) the better.
Use at You Own Risk.