One, the price-earnings ratio valuation method
Price-earnings ratio = share price ÷ earnings per share, according to the earnings per share to choose different data, the price-earnings ratio can be categorized into three kinds: static price-earnings ratio; dynamic price-earnings ratio; rolling price-earnings ratio. Forecasting the stock price, the stock price valuation is generally used in the dynamic price-earnings ratio, which is calculated as follows:
Share price = dynamic price-earnings ratio × earnings per share (forecast value)
Which, the price-earnings ratio is generally used by the average price-earnings ratio of the enterprise's industry segments. If it is a leading company in the industry, the price-earnings ratio can be increased by 10% or more; earnings per share is chosen to predict the future of this company can maintain a stable earnings per share (can be used in the brokerage firms research report given in the EPS forecast value).
Earnings ratio is suitable for the valuation of the company in the growth period, the following chart has the development prospects and imagination of the industry, their valuation is higher. Since the P/E ratio is related to a company's growth rate, which varies from industry to industry, a comparison of P/E ratios between companies in different industries is not very meaningful.
So, the price-earnings ratio comparison, more than with themselves (trend comparison), more than with peer companies (side-by-side comparison).
Two, PEG valuation method
Valuation with P/E ratio has its limitations. We all know that the price-earnings ratio on behalf of the stock to recover the investment cost of the time required, the price-earnings ratio = 10 that the stock's payback period is 10 years. But there are stocks with P/E ratios of up to 100 times or more, and then using the P/E ratio for valuation is not appropriate.
This requires the PEG valuation method on the field. That is, the price-earnings ratio and the company's performance growth relative to each other, that is, the price-earnings ratio relative to the proportion of profit growth. The formula is:
PEG=P/E÷G
=P/E ratio ÷ compound growth rate of net profit for the next three years (earnings per share)
Generally speaking, the smaller the PEG, the better and safer it is to choose a stock. However, PEG>1 does not mean that the stock is necessarily overvalued. If the PEG of a company's stock is 12, but the PEG of the stocks of companies in the same industry are above 15, the company's PEG may still be undervalued although it is already higher than 1.
Third, the price-to-book ratio valuation method
The price-to-book ratio refers to the ratio of the share price per share to the net assets per share.
Generally speaking, stocks with lower P/B ratios have a higher investment value, and vice versa.
The formula is:
Price-to-book ratio = share price ÷ net assets per share for the most recent period;
Share price = price-to-book ratio x net assets per share for the most recent period.
This valuation method is suitable for companies with large and relatively stable net assets, such as steel, coal, construction and other traditional companies can be used. But IT, consulting and other small assets, labor costs dominated the enterprise is not applicable. When analyzing the continuation of the principle of "peer-to-peer and historical comparison", usually the lower the P/B ratio, the safer the investment.
According to the SEC's industry classification,
The price-to-book ratio of the food manufacturing industry is higher than that of the information technology industry, which is higher than that of the manufacturing industry and higher than that of the mining industry.
Below is a list of the P/B ratios of Shenwan's industries in October this year. Banking stocks have the lowest P/E ratio; Food & Beverage industry has the highest P/E ratio; 65% of the companies have P/E ratio between 1-2. Does this mean bank stocks are undervalued?
Not necessarily. Because banks have a lot of non-performing assets. This is also a limitation of the P/B valuation method. A company's machinery and equipment and office supplies are subject to impairment, but the P/B ratio, which is valued through historical cost, does not reflect this. So don't think you're picking up a bargain by buying stocks with low P/B ratios, when their actual value may have long been below book value.
Four, the market rate
Market rate = share price per share / free cash flow per share. The smaller the market-to-cash ratio, the more the listed company's cash per share increases, and the less pressure it is under to operate. In other words:
The number you get by dividing a stock's market price by its cash flow per share represents how many years it will take you to recoup the cost of your investment in cash from that stock. The lower the market-to-cash ratio, the shorter the time it takes you to recoup your costs, and the more worthwhile the investment.
Five, DCF valuation method
DCF, discounted cash flow method, DiscountedCashFlow, refers to the future cash flow, through the discount rate, discounted to the present value. To put it bluntly, it means converting 100 dollars next year to today, how much will it be worth?
Assuming that the business receives $100 at the end of each year for the next three years, how much is that $300 converted to today?
Based on the present value formula, we know that it has to be t=3 and CFt=100, assuming a discount rate of 10%. Applied to the formula, the results are as follows:
The first year of $ 100 discounted = 100 / (1 + 10%); ①
The second year of $ 100 discounted = 100 / (1 + 10%) 2, ②
The third year of $ 100 discounted = 100 / (1 + 10%) 3, ③
Lastly, three years of the discounted value of the sum, that is, ① + + ② + CFt = 100, assuming a discount rate of 10%. i.e. ① + ② + ③, is the present value of the asset's expected future cash flows.
On the other hand, this method is theoretically perfect, but not as good as the market rate.
Sixth, summary
As above is a summary of the five valuation methods.
P/E ratio is the most commonly used indicators;
PEG valuation method is a complement to the P/E valuation method, suitable for the valuation of growth enterprises;
Market Net Ratio is suitable for those who have a large proportion of net assets and more stable enterprises;
Market Cash Ratio is the most conservative valuation indicators, the hands of cash is stronger than anything;
DCF valuation method is tedious for everyone to calculate, you can refer to use.