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Larry1234

Fundamental Analysis - Relative Valuation / DCF Valuation

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This thread is for those who like to discuss about the Fundamental Valuation (Relative valuation / Discounted Cash Flow valuation) of stocks listed on NYSE. I am waiting for your thoughts in this thread and their usefulness in trading.

 

We all know valuation is done by Research analyst and if the current market price is below (above) than the Intrinsic value of the stock, then the stock is Undervalued (overvalued) and we do the trading accordingly.

 

Awaiting more inputs to this thread so that it helps in trading decision making.

 

Happy Learning :)

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Interesting subject. I guess PE valuation would also be an interesting thing to talk about in this thread and the whay DCF valuation and PE valuation interelate.

 

One thing, do you make your own valuations or rely on analyst recomendation reports to define an intrinsic value?

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Larry1234,

 

As early in the thread as possible

Could you explain just a little bit more

about how you are defining and using:

 

Fundamental Valuation

Relative valuation

Discounted Cash Flow valuation

Intrinsic value

 

Thanks.

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Larry1234,

 

As early in the thread as possible

Could you explain just a little bit more

about how you are defining and using:

 

Fundamental Valuation

Relative valuation

Discounted Cash Flow valuation

Intrinsic value

 

Thanks.

 

Let me first define the following -

 

Fundamental Valuation means valuing the company using its fundamentals i.e. the financial statements of the companies.

 

Relative Valuation means valuing the company by comparing the price to its peers. e,g. If 'x' is trading at a P/E multiple of 10, then the company 'Y' (which is in similar business line and having same growth & Capital structure as 'X') should trade at a multiple of 10. This is relative valuation.

 

Discounted cash flow valuation is a technique to identify the intrinsic value of the company. It is a valuation method comes under Fundamental valuation.

 

Intrinsic value means the present value of all future cash flows to the company or this should be the actual price of the company. If the current market price is higher than Intrinsic value, then we can say that the stock is overvalued and vice-versa.

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Interesting subject. I guess PE valuation would also be an interesting thing to talk about in this thread and the whay DCF valuation and PE valuation interelate.

 

One thing, do you make your own valuations or rely on analyst recomendation reports to define an intrinsic value?

 

Discounted Cash Flow is one of the method to do the valuation. I generally read analyst recommendation to take a call but I also do valuation at my own. It is not possible to do the valuation for each and every company, so I also read analyst recommendation on the companies which I am not covering.

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Intrinsic value is important for an investor but it is not important for a trader. There could be various reasons for the same. One possible reason can be time horizon for which they are making investments.

 

Lets discuss the possible reasons for this.

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