Finance 571 Week 4 "Concept Review Video: Cost of Capital"

Topics: Fundamental analysis, Stock market, Stock Pages: 2 (504 words) Published: October 16, 2014
Investors Valuation of Stock
An investor should value a stock by looking at the intrinsic value of the stock and how the market value compare to the intrinsic value. The most common mathematical method of valuing stock is to determine the price earnings ratio (P/E). The P/E ratio is calculated by dividing the share price by the company’s net income. As a general rule a P/E ratio should be in the higher teens. Stocks with a below-market P/E are considered cheaper, and a higher P/E ratio are considered expensive (Kansas, 2014). To evaluate if a stock is under or over-valued investors should look at the CAPM (Market securities Line) based on the Beta of the company and determine the performance of the stock. An investor can use indexes, such as the Dow Jones, NYSE, or S&P 500, in stock valuation. Value investing is common for investors. It is misrepresentation of price so the buyer buys a stock at a lower price than true worth or sells at a higher price than true worth. Considering all variables and determining true fault in price, this method provides investors easy margins. Investors’ value stocks using various strategies and methods, but all driving factors are in hopes of gaining margin and growth of the company invested in. The concept of stock valuation is simple. However, predicting the future is not as simple and can be complicated. Market Valuation of Stock

Market and investors value stock differently. The market depends on expectations and recent information available to the market. The market’s value of stock are usually based on past history and trends. Based on current economic conditions we look at the past and see how it would look going forward. Through use of charts, value lines, or other indicators, the market looks at certain things such as floors, ceiling, resistance points, when valuing stock. The stock value is a collective price based on numerous variables considered, equaling a company’s worth combined with social trends and...
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