Evaluate Value Stocks
Value investors do not base their investment decisions on hot tips, the latest investment trends, or chart patterns. Instead, they base their decisions on deep quantitative and qualitative research. Value investors spend time analyzing companies financials and pay particular attention to valuation ratios such as the price to earnings(P/E) ratio, the price to book (P/B) ratio and the free cash flow (FCF) ratio. They also often use discounted cash flow(DCF) models to determine whether a company is undervalued by the market. They like stocks that offer a significant 'margin of safety-those trading well below their true value.
Evaluate Growth Stocks
Growth stocks are simply evaluated as the present value of cash flows expected in the future. If we expect an stock to return $100, $200 and $300 in the coming first, second and third year, then the present value calculation of all these returns is its overall value.
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