Stock Valuation Tools
- "Stock valuation" is the process of determining the intrinsic value of a security.chart background image by Stasys Eidiejus from Fotolia.com
Common stock shares, like any other asset, are considered as having two values. The market value is the current price at which the asset can be bought or sold. The intrinsic value is considered the true value of the asset. Speculators look for assets being traded at below their intrinsic value in hopes of realizing a profit when the market value reaches parity with the intrinsic value. To this end, speculators often use tools to determine the intrinsic value of the securities in which they invest. - Academics in the realm of finance have long struggled with how to accurately determine the intrinsic value of a given asset. Dr. Zhiwu Chen of Yale's finance department has created a valuation tool for valuengine.com. This particular valuation model uses fundamental analysis. Fundamental analysis uses various statistics, usually acquired from financial statements, to determine the value of a stock. For example, the valuengine.com tool uses 12-month EPS (earnings per share). However, this utility also uses technical analysis. Technical analysts, called chartists, examine past price trends of securities or markets in an attempt to forecast future movements. The program tries to emulate this and forecasts what it regards as the most probable price values for the security over the next three years. Like many such tools, there is a charge for accessing this, though many investors would consider the $19.95 per month (as of September 2010) price tag quite reasonable.
- The site moneychimp.com does not offer a comprehensive valuation algorithm like valuengine.com. However, it does offer a variety of tools that can be used to assist stock valuation. There are tutorials, various calculators and articles about such financial topics as discounting, compounding, modern portfolio theory and capital structure. While this may seem to lack the convenience of simply entering data into a program that returns an intrinsic value for a security, this approach does have the advantage of educating the investor in the principles underlying valuation theory. Much of moneychimp's content is assessable at no charge and without having to register as a member of the site.
- Another tool that combines both technical and fundamental analysis can be found at stockworm.com. The founders of this site are veterans of genetics and bioengineering and do not hold intuition and gut feelings in high esteem. Most sites' stock screens include options such as market capitalization, P/E ratio and earnings growth, but stockworm's also permits investors to examine technical parameters like, stochastics, relative strength indices and moving averages. An advantage of this site over some of its competitors is that it offers multiple valuation techniques, and allows an investor to search for other securities that have similar fundamental or technical aspects of a favored investment.
