The higher the stock valuation, the better?

As we all know, stock valuation is an estimate of the potential value of a stock. Because different industries have different profitability and growth, valuations are also different. If the enterprise is to be valued, the premise is that the enterprise should have stable performance and relatively stable profit growth. So, the higher the stock valuation, the better?

The higher the stock valuation, the better?

The higher the stock valuation, the higher the potential value of the stock, but it does not mean that the higher the stock valuation, the better. Once the stock value is overvalued, investors will invest unnecessary funds, and losses will naturally occur from time to time. In addition, for those companies whose performance is easy to lose money and grow rapidly, high valuation is meaningless.

For investors, what needs to be avoided is that the company's value is artificially high and the stock price bubbles. Not all expensive stocks are good. Similarly, the higher the stock valuation, the better. Investors need to look at the quality of the stock and the performance of the company.

How to correctly value a stock?

1 P/E ratio = price per share/earnings per share. Generally speaking, in mature markets, it is normal for blue-chip stocks to be valued at about 15 times, but not more than 25 times, otherwise the price will be overvalued.

2PEG=PE/ (net profit growth rate * 100). This valuation method is suitable for growing enterprises, and the value less than or equal to 1 is the best. When PEG is lower than 1 or lower, it means that the current stock price is normal or undervalued, while it is higher than 1 and overvalued.

3 P/B ratio = price per share/net assets per share. This valuation method is suitable for sunset industries or heavy assets enterprises. If the market price divided by the net assets is less than 1, it means that it is already very cheap.

Investors should adopt different valuation methods for different enterprises, and the higher the stock valuation, the better. Need to be reminded that investors can't touch junk companies after entering the stock market.