What is stock valuation?

Stock valuation is the process of calculating how much a company stock is worth using methods that consider economic factors such as past prices and forecast data. This can help you predict future market prices.

Where have you heard about stock valuation?

Valuation is a fundamental aspect of investing. If you discover a stock is undervalued, you may be able to capitalise by buying it in anticipation that you can sell it at a higher price in the future. If a stock is found to be overvalued, you can avoid the stock or sell your current holdings before the price drops.

What you need to know about stock valuation.

Stock valuation requires great attention to detail. To place a value on a stock you need to examine the company’s cash flow, prospects of future earnings and market value of assets. Psychological factors, such as fears of an economic crisis, should also be taken into consideration as this may affect investor behaviour.

The value can be calculated in several different ways. The most common methods used are the discounted cash flow method and price-to-earnings ratio. Whichever approach you take, it must be done with great accuracy.