We want to buy any item at a reasonable price. The same thing applies in the case of shares and securities. Actually, the main objective of ‘equity valuation’ is to estimate the true value of a company or its securities. The valuation of the stock can be done by finding out the basics of how a company conducts its everyday business. Let’s see more things about it here.
What is Equity valuation?
1. Equity valuation is a method of deriving the fair value of a company or its equity stock. This allows the investor to know the true value of the share. The investor’s profit-loss is attached to it. The reason is that if you buy a stock at a high cost, then it also affects the returns. At the same time, the returns can be increased by buying the shares at the right prices.
2. When it comes to the stock market, the value is the price of the company’s stock that an investor is ready to pay. At this price, investors buy a stock.
3. There are two ways of valuation of a stock i.e. fair value. One of them is the absolute valuation model and the other is the relative valuation model. Different methods are used in both methods.
4. In the absolute valuation model, an attempt is made to find the ‘right’ value of the share. Fundamental such as dividend, cash flow and growth rate of the company are used.
5. In relative valuation, one company is compared to another company of the same kind. This involves comparing and calculating ratios or multiple ones like PE.