Stock Valuation Model - 3 easy Techniques to Value Stock

Penny Stock Trading - Stock Valuation Model - 3 easy Techniques to Value Stock

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Stock valuation models are methods to value stock. Everyone knows the stock price but only few understand how much it worth and the other investors do not even care. If you are one of the entertaining investor, think these valuation models in your next purchase.

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Discounted Cash Flow (Dcf)

This is probably the most base model that you ever heard when it comes to stock valuation. However, I found it a bit tough to do it. Plainly because the discounted cash flow model have to think revenue increase and the escalated cost at the same time, which can be too difficult to evaluation and forecast as an covering investor.

Nevertheless, you can use this formula in valuing stock by projecting future cash flow; from the sales and costs, and reduction back to current value with Weighted average Cost of Capital (Wacc).

Dividend reduction Model (Dd)

This model suits best for revenue investors. The idea is to scheme future dividend distribution based on the average historical dividend payout ratio and reduction it back to present value. Although this is the simplest among all, it works best for high dividend yield stocks.

Nonetheless, the stocks must have very strong firm performances that can guarantee the dividend payments 10 years down the road. And normally, penny stocks cannot be evaluated this way.

Earnings increase Model (Eg)

This is my favourite formula as it is very practical and easy to do. Initially, I scheme its future revenue using constant or variable increase rate. Whether constant or variable increase rate is depends on the hope of its firm operation within that period. Often than not, I normally use the historical firm operation as a baseline provided its basic value remain intact. Then, I reduction the future revenue with the imaginable return on speculation (Roi).

I found this model as extremely principal since the stock price is literally reflected by its earnings, e.g. Per.

So, before buying anymore shares in the future, put some efforts to value the stock. You can cut the risk of losing money significantly if you buy the stock at much cheaper price than its intrinsic value. Find out how to value stock in http://www.Stock-Investment-Made-Easy.com/calculate-intrinsic-value.html

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