Best indicators to value stocks : Today Moneypip Discuses Best Indicators to Value Stocks so read carefully because if you are a trader then this article very helpful for you.
Other than P/E which is the best Indicator to value Stocks
I think the first thing which investors I’m not talking about very sophisticated institutional investors now to the retail audience which comes on moneypip. I would suggest that basically the first thing is to get to the market cap of the company. what is the market cap and then you look at what is the debt of the company.
Indicators to value stocks
- Market cap
These two are very important in valuing water businesses and when you look at the market cap and you take on board the debt the net debt of the company you come at the enterprise value. The enterprise value tells you what is the core value of the business now you can do it many ways you can say that the enterprise value of a business is five thousand crores and what is the sales turnover of the company it’s thousand crores what is the profit of the company it’s 200 crores let’s work with these.
Examples : These are very simple because these are known you can arrive at an enterprise value very easily with the market cap and the debt and you can arrive at their revenues delivered revenues and profits of the company. And then you can make a broad assessment like 5,000 crores is the enterprise value 1000 crores is the sales of the company annual sales. Therefore I’m valuing the business at five times annual sales which is you have to adjust for the quality and the nature of the sector but it’s not too low 200 crores of profit 5,000 crores of enterprise value you are talking about 25 times profit which again is not terribly cheap usually our markets traded between 15 and 17 18 times earnings.
So this is the basic nature you look at the value you look at the revenues and you look at the earnings and come to some assessment now for banks which is what a lot of people own I would submit that you don’t look at the P multiple you look at the price to adjust it book. You don’t have to calculate that yourself you go to any balance sheet or get to any under support they always have something called the ABV which is the adjusted book value.
You merely divide the price by the adjusted book value if State Bank of India is trading at 250 and that State Book value is 200 then the stock is trading at one point two times price to adjust it book or 1.25 price – adjusted book and that is a far more reliable indicator for banks as an asset class as a sector compared to price earnings multiples. And for various other businesses you can look at even DCF for discounted cash flows but I would say for simple people stick to the p multiple and stick to the price to book for banks.
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