The five most common stock valuation methods

Buffett once said; "An investor really only needs to learn two lessons: how to understand the market and how to value it." This shows that stock valuation research is a very important part of investment. Different from the fundamental research to the actual operation of the enterprise, valuation research qualitative heavy quantitative, focusing on the estimation, would rather fuzzy correct, do not precise error.

Company valuation methods are usually divided into two categories: one is the relative valuation methods, such as P / E valuation method, PEG valuation method, P / B valuation method, the market rate valuation method, etc.; the other is the absolute valuation methods, characterized by the main use of discounting methods, such as the discounted dividend model, free cash flow model. These methods have their own advantages and disadvantages in practical application, now the commonly used valuation methods are briefly described as follows:

One, PE valuation

PE (share price / earnings per share) is the market is the most common valuation index, according to the earnings per share selection of different data, the price-earnings ratio can be divided into a static price-earnings ratio, dynamic price-earnings ratio. Among them, because the dynamic price-earnings ratio is more closely related to market dynamics, the frequency of daily use is also the highest.

When using the P/E ratio for valuation, the net profit should be cleaned to reflect the real net profit of the enterprise. The P/E ratio is suitable for the valuation of companies in the growth period, and is generally higher for industries with great development prospects and imagination.

Static price-earnings ratio: generally choose the earnings per share of the last reporting period.

Dynamic price-earnings ratio: the current or future earnings per share forecast.

Two, PEG valuation

PEG is the PE relative to the proportion of future net profit growth, which appeared in order to make up for the lack of price-earnings valuation, for the surplus rate of different companies in similar situations, if the growth of the later stage of the situation is different, the market gives the valuation of the market tends to be very different, at this time, if you are strong with the price-earnings ratio to measure the valuation of the height of the opportunity to invest is often missed.

Generally speaking, when choosing stocks, the smaller the PEG the safer, but PEG>1 does not mean that the stock is overvalued, this is only a relative concept, need to consider the performance of peers.

Three, the price net ratio valuation

Price net ratio refers to the ratio of the share price per share to the net assets per share, generally speaking the lower price net ratio of the stock, the investment value is higher, and vice versa, the value of the investment is lower.

When using P/NAV valuation, net assets need to be handled in a certain way to reflect the true operating asset structure of the company. P/NAV valuation is applicable to enterprises with large and relatively stable net assets, and is generally used in the valuation of asset-heavy industries, such as iron and steel, coal, and construction. However, IT, consulting and other companies with smaller assets and dominant labor costs are not applicable.

Four, the market rate of valuation

Market rate is the ratio of the share price per share and the free cash flow per share, the smaller the market rate, indicating that the listed company's operating pressure is less, the shorter the time for investors to recover costs. Since free cash flow per share is more reliable than earnings per share, this valuation method is more conservative relative to PE, but also more reliable.

Fifth, DCF (DiscountedCashFlow) valuation

DCF refers to the future cash flow, through the discount rate, discounted to the present value. The method is perfect in theory, but it is much more subjective as future cash flows, and discount rates need to be predicted.

Because of the huge difference in business models of different industries, and thus the valuation methods applicable to each industry are different, such as heavy asset-based enterprises (such as traditional manufacturing industry), to the net asset valuation method, supplemented by profit valuation method; light asset-based enterprises (such as service industry), to the profit valuation method, supplemented by the net asset valuation method; Internet enterprises, to the number of users, clicks and market share For visionary considerations, the market-to-sales ratio is the main; emerging industries and high-tech enterprises, market share for visionary considerations, the market-to-sales ratio is the main. Investors in the specific application of specific issues to be analyzed, flexible.