Valuation Analysis

What is a 'Valuation Analysis'

A form of fundamental analysis that looks to compare the valuation of one security to another, to a group of securities or within its own historical context. Valuation analysis is done to evaluate the potential merits of an investment or to objectively assess the value of a business or asset.

Valuation analysis is one of the core duties of a fundamental investor, as valuations (along with cash flows) are typically the most important drivers of asset prices over the long term.

BREAKING DOWN 'Valuation Analysis'

Valuation analysis should answer the simple, yet vital, question of, "What is something worth?" The analysis is then based on either current projections or projections of the future. While investors can agree on a metric like the current price-to-earnings ratio (P/E ratio), how to interpret a given valuation can and will differ among those same investors.

Many types of valuation methods are used, involving several sets of metrics. For equities, the most common valuation metric to use is the P/E ratio, although other valuation metrics include: Price/Earnings, Price/Book Value, Price/Sales, Enterprise Value/EBIDTA, Economic Value Added and Discounted Cash Flow.

RELATED TERMS
  1. Asset Valuation

    A method of assessing the worth of a company, real property, ...
  2. Relative Valuation Model

    A business valuation method that compares a firm's value to that ...
  3. Historic Pricing

    A method for calculating the value of an asset using the last ...
  4. Accounting Valuation

    The process of valuing a company's assets for financial-reporting ...
  5. Post-Money Valuation

    A company's value after outside financing and/or capital injections ...
  6. P/E 30 Ratio

    The price-to-earnings (P/E) ratio is the valuation ratio of a ...
Related Articles
  1. Investing

    Relative Valuation: Using Stocks To Value Other Stocks

    This effective approach will help you understand which stocks you should be investing in.
  2. Markets

    Fundamental Analysis: A Brief Introduction To Valuation

    By Ben McClureWhile the concept behind discounted cash flow analysis is simple, its practical application can be a different matter. The premise of the discounted cash flow method is that the ...
  3. Active Trading Fundamentals

    How to Identify Mispriced Stocks

    Find out how to identify mispriced stocks. Learn about intrinsic and relative valuation methods based on fundamentals, and technical analysis.
  4. Fundamental Analysis

    Equity Valuation: The Comparables Approach

    The premise for the comparables approach to equity valuation is that an equity’s value should bear some resemblance to other equities in a similar class.
  5. Markets

    Relative Valuation Of Stocks Can Be A Trap

    This method of valuing a company can make it look like a bargain when it is not.
  6. Active Trading

    5 Must-Have Metrics For Value Investors

    These quick-and-dirty ratios will help you find the most undervalued stocks on the market.
  7. Stock Analysis

    Expedia and More Big Movers on the Nasdaq on September 21, 2012

    This morning, the Nasdaq has moved little, the S&P 500 has decreased 0.3% and the Dow has been relatively flat. The recent surge in popularity of technological stocks has launched the Nasdaq ...
  8. Stock Analysis

    Big Movers on the Semiconductors Sector Today, Including INVN

    So far today, the Nasdaq has fallen 0.8%, the S&P 500 is down 0.2% and the Dow is trading up 0.4%. The Semiconductors sector (XLK) is up 0.5% so far today and here are its biggest movers: ...
  9. Stock Analysis

    Ocwen and Other Financial Stocks Making Big Moves on October 3, 2012

    The market is on the rise this morning. The Nasdaq has increased 0.6%; the S&P 500 has moved up 0.4%; and the Dow has risen 0.3%. The financial sector is the category of stocks containing ...
  10. Investing

    Discounted Cash Flow (DCF)

    Discover how investors can use this valuation method to determine the intrinsic value of a stock.
RELATED FAQS
  1. Is it better to use fundamental analysis, technical analysis or quantitative analysis ...

    Understand the difference between fundamental, technical and quantitative analysis, and how each measurement helps investors ... Read Answer >>
  2. What role does ratio analysis play in valuing a company?

    Learn about the role of ratio analysis in determining company value, including some of the most common ratios used by modern ... Read Answer >>
  3. Besides free cash flow to equity (FCFE), what are other metrics for estimating a ...

    Learn about metrics used to calculate a company's value, including capital expenditure, revenue expenditure, price-to-earnings ... Read Answer >>
  4. How is convertible bond valuation different than traditional bond valuation?

    Read about bond valuation, particularly the differences between how a traditional bond is valued and how a convertible bond ... Read Answer >>
  5. What is the difference between enterprise value and equity value?

    Valuating a business accurately depends heavily on the purpose of the valuation. Learn how enterprise value and equity value ... Read Answer >>
  6. What can cause an asset to trade above its market value?

    Learn some of the factors that can affect the price of an investment asset and the major reasons why an asset might trade ... Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center