Three Methods Of Stock Valuation

There are many ways of valuing stocks. According to different perspectives such as investors' expected return, enterprise profitability or enterprise assets value, there are many commonly used methods.

First, the dividend benchmark model is based on the dividend rate as the standard to evaluate stock value, which is especially useful for investors who want to obtain cash flow from investment.

The simplified formula can be used: stock price = expected dividend in the coming year / rate of return demanded by investors.

For example, HSBC expects to have a dividend of 0.32 US dollars (about HK $2.50) this year, and investors hope that the capital return will be 5.5% for the year. If other factors remain unchanged, the target price of the HSBC should be 45.50 yuan.

Two, the most widely used profit standard ratio of investors is PE. The formula is: P / E = share price / earnings per share.

The use of P / E ratio has the following advantages: simple calculation, easy data collection, and relevant information in daily economic newspapers. It is known as historical P / E or static P / E.

However, we should pay attention to, in order to more accurately reflect the future trend of stock prices, we should use the expected price earnings ratio, that is, to substitute the expected return in the formula.

Investors should be aware that P / E is a relative index reflecting market expectations for company earnings. The price earnings ratio index should be based on two relative angles, one is the relative change of the expected price earnings ratio and the historical P / E ratio of the company, and the two is the company's P / E ratio and the industry average price earnings ratio.

If a company's P / E is higher than the previous year's P / E or the industry average price earnings ratio, it shows that the market expects that the company's future earnings will rise; otherwise, if the P / E ratio is below the industry average, it is expected that the company's future earnings will decline as compared with the same industry.

Therefore, the P / E ratio should be treated relatively. It is not that the high P / E ratio is not good, and the low P / E ratio is good.

If a company's future earnings are expected to rise and its stock price earnings ratio is lower than the industry average, there will be an opportunity for future stock prices to rise.

Three, the market value ratio (PB), that is, the market rate, the formula: the market rate = stock price / net asset value per share.

This ratio is the basis for estimating the stock price of a company from the perspective of company assets value. It is more appropriate to analyze the valuation of the stocks of banks and insurance companies which are mostly made up of monetary assets.

In addition to the most commonly used valuation criteria, there is also a cash discount rate, a ratio of earnings to earnings per share (PEG), and some investors prefer to use a return on equity or return on assets to measure an enterprise.