Equity Valuation
Equity valuation is the process of determining the fair value of a company’s shares using various financial models, such as discounted cash flow (DCF), price-to-earnings (P/E) ratios, and comparable company analysis. Valuation helps investors assess whether a stock is undervalued, overvalued, or fairly priced based on its fundamentals, market conditions, and future growth prospects. Accurate equity valuation is crucial for making informed investment decisions, especially when considering buying, selling, or holding shares.
Example
An analyst values a technology company using a DCF model, estimating its future cash flows and discounting them to present value to determine if the stock is a good buy.
Key points
• Determines the fair value of a company’s shares.
• Uses models like discounted cash flow (DCF) and P/E ratios.
• Helps investors decide if a stock is undervalued, overvalued, or fairly priced.