valuation Archives

What is Valuation?

The simple answer is that the valuation of a company or stock, is how much a company is thought to be worth, based on a variety of factors.

As a definition, this simple answer is fine. But when it comes to determining the actual value of a stock, not all valuation methodologies are created equal.

No single method applies to all companies or succeeds in all market conditions. The price of a security is based on several tangible and intangible factors: the current status of the company, the prospects for the company, market sentiment, economic or political environment, and many other factors.

Again, value refers to potential capital gain opportunities in the stock market. More obvious factors include strong balance sheets, good earnings growth, and low price-to-earnings ratios (P/Es). Other hidden values that go into a valuation could be real estate owned by the company, patents on intellectual property, or secondary revenue streams that could become more prominent sectors of business in the future.

But even within the investing industry, there is no hard and fast rule about the importance of valuation. Some professionals believe it’s essential to consider valuation and room for growth, then buying when valuation as compared to peers is reasonable.

For others, valuation is just one of many data points to look at. In fact, many of history’s biggest winners got going with huge valuations. The bottom line is that, if the growth is exciting enough (and the market is bullish), valuation doesn’t stand in the way of institutions piling in as the story unfolds.

As you can see, valuations are based on several influences, but it’s still up to the individual investor to decide if they believe the hype, or to the contrary, if they see an underdog who is going to spike. 

To learn more, download our FREE report, Technical Analysis of Stocks: How Relative Performance Works, Why Trading Volume is Important, and Other Chart-Reading Lessons. 

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November 25, 2020||Stock Market

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November 25, 2020||Value Investing

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November 25, 2020||Small Cap Stocks

Given the news that we are likely to have several effective vaccines approved over the next couple of months, value stocks, which tend to be more cyclical and thus will benefit more sharply from an improving economy, have outperformed growth stocks.
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November 25, 2020||Income Investing

Vaccine Euphoria It’s another week and another vaccine rally for the market. For the third straight week, a company has announced positive trial results for a coronavirus vaccine. The market loves it every time. The major indexes are now at or very near all-time don’t...
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November 19, 2020||Growth Stocks

Wild—but Positive—Action The healthiest market environment is generally one where most participants are rowing in the same direction—the vast majority of stocks and sectors glide higher (with the occasional pullback or shakeout, of course) as investor perception of the future steadily improves. Even if broad...
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