Estimation of the intrinsic value of a stock

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date Estimation of the intrinsic value of a stock Akash 09-10-2007  Re: Estimation of the intrinsic value of a stock Jose Bailen 09-12-2007  Re: Estimation of the intrinsic value of a stock Ignoramus32529 09-13-2007
Posted by Akash on September 10, 2007, 11:05 am The procedure commonly used by investment analysts to estimate the intrinsic value of a stock traded in the stock market consists of the following steps: · Estimate the expected earnings per share of the stock. · Establish a price earning multiplier (or P/E ratio). · Develop a value anchor and a value range. However, we consider it appropriate to advise you the investor at this stage itself, that there are three main obstacles in the way of successful fundamental analysis. Namely: · Inadequate and/or incorrect financial data pertaining to the stock under study. · Future uncertainties. · Irrational stock market behaviour. For a more detailed study and understanding; visit: http://www.narachinvestment.com/estimation_of_the_intrinsic_value_of_a_stock.htm Posted by Jose Bailen on September 12, 2007, 3:44 pm Thanks. An alternative way -widely used as well- is to use the EVA (Economic Value Added) approach. To summarize its results, the intrinsic value of a stock is given by its book value plus the discounted sum of expected future (ROIC minus WACC), where ROIC is the return on invested capital, WACC is the weighted average cost of capital, and the discount rate which is usually considered is beta (the covariance of the stock returns with the market portfolio). > The procedure commonly used by investment analysts to estimate the > intrinsic value of a stock traded in the stock market consists of the > following steps: > > · Estimate the expected earnings per share of the stock. > · Establish a price earning multiplier (or P/E ratio). > · Develop a value anchor and a value range. > http://www.narachinvestment.com/estimation_of_the_intrinsic_value_of_... Posted by Ignoramus32529 on September 13, 2007, 9:35 am > Thanks. An alternative way -widely used as well- is to use the EVA > (Economic Value Added) approach. To summarize its results, the > intrinsic value of a stock is given by its book value plus the > discounted sum of expected future (ROIC minus WACC), where ROIC is the > return on invested capital, WACC is the weighted average cost of > capital, and the discount rate which is usually considered is beta > (the covariance of the stock returns with the market portfolio). Adding a book value here leads to double counting. As always, the main problem with all these "approaches" is that future earnings are not very easy to predict. This usually makes them unusable. i Similar Threads Posted Where to get stock volatility? September 29, 2006, 11:51 am AT&T Wireless AWE stock is it of any value October 2, 2006, 5:03 am Value or Growth Stock December 29, 2006, 8:19 am Basis In Stock ??? March 25, 2007, 12:37 pm Re: Basis In Stock ??? March 28, 2007, 5:02 am Selling Stock April 26, 2008, 12:43 pm Re: Selling Stock May 5, 2008, 1:53 pm Stock Dilution July 30, 2008, 12:46 pm Gifting appreciated stock November 17, 2006, 2:27 pm Stock Trading Evolution November 29, 2006, 11:22 am