Overview
Quotes
Valuation
Charts
Technical indicators
Trading signals
Point and figure charting
Fundamental analysis
Rule sets
Stock screeners
(see our flash screener movie)
Portfolio management
Autoinvestor strategies
Data coverage
About us
What is stock value and how do I use it?
In simple terms, stock value is the worth of a given stock. If you discover a stock trading below its stock value (undervalued), then you might consider buying this stock, hoping that the price will rise to the stock value. If you own a stock and notice that the price has increased so that it is greater than the stock value (overvalued), you might consider selling it.
In reality, there is no such thing as a perfect stock value formula, but Stockworm provides a variety of sophisticated valuation techniques which attempt to best assess the worth of a given stock. As a Stockworm user, you can either follow the value formula which best matches your personal investing philosophy or you can use the average valuation as an indicator of the consensus value for a given stock.
How is stock value calculated?
There are many different types of value calculations. The simplest stock value formulas use current accounting, meaning that they do not project the value of the stock into the future. For example, the book value per share is typically considered to be the lowest value that should be assigned to a company. More complex models, like those implemented by Stockworm, take into account future earnings, dividend rates, risk-free rates of return, risk of an individual stock, time for the value projection, and other factors.
What stock value models does Stockworm support?
Stockworm currently provides 5 different valuation models with varying levels of complexity. The simple average of these 5 techniques is displayed on the Stockworm stock report cards.
| basic ebo model |
| The Edwards-Bell-Ohlson model is a version of the dividend discount valuation model. This model incorporates all of the complex valuation terms which were discussed above. The current 30 year t-bill rate of return is chosen to be the risk-free rate. The risk of a given stock for the Basic EBO model is chosen to be Beta. The Stockworm-selected time frame for all complex valuation models is chosen to be 10 years. |
| levered beta ebo model |
| The levered beta EBO model is identical to the Basic EBO model with the exception that the Beta is adjusted for the debt level of the stock under consideration. High debt levels effectively yield a higher risk under this model. |
| risk proxy ebo model |
| The Risk Proxy EBO model discards the traditional measurement of both risk and beta, and instead uses 'proxies' for risk. Risk proxies are parameters which do not feed into stock valuation in a traditional accounting sense, but which investors seem (by their investment choices) to view as indicators of risk (e.g. market cap, number of analysts covering a stock, and variation in earnings estimates). |
| peg value |
| PEG based valuation is a simplistic valuation technique which takes advantage of a rule of thumb. This rule states that the P/E ratio of a fairly valued stock should be equal to the growth rate of the stock. Overpriced stocks have higher P/E's and underpriced stocks have lower P/E's than their respective growth rates. 'PEG' is the ratio of P/E compared to growth rate: PEG = (P/E)/(%earnings growth) and PEG Value = Current Price / PEG. |
| forward p/e value |
| The forward P/E valuation is another simplistic technique which is based upon a rule of thumb. The rule of thumb is that stocks typically trade at a constant P/E and therefore the 'future' value of a stock can be calculated by comparing the current P/E with the future P/E (as predicated using analysts' estimated earnings for this year). The forward P/E value is calculated as: Price * (P/E,current)/(P/E,future)). |
