Investors Valuation of Stock Essay Example for Free

Investors Valuation of Stock EssayAn investor should value a stock by looking at the intrinsic value of the stock and how the market value comp atomic number 18 to the intrinsic value. The most common mathematical method of valuing stock is to image the price earnings ratio (P/E). The P/E ratio is calculated by dividing the share price by the companys net income. As a general rule a P/E ratio should be in the higher(prenominal) teens. Stocks with a below-market P/E are considered cheaper, and a higher P/E ratio are considered expensive (Kansas, 2014). To evaluate if a stock is under or over-valued investors should look at the CAPM ( foodstuff securities Line) based on the Beta of the company and determine the performance of the stock.An investor can use indexes, such as the Dow Jones, NYSE, or SP 500, in stock valuation. Value investing is common for investors. It is trick of price so the buyer buys a stock at a lower price than true worth or sells at a higher price than true worth. Considering all variables and determining true fault in price, this method provides investors easy margins. Investors value stocks using various strategies and methods, but all cause factors are in hopes of gaining margin and growth of the company invested in. The concept of stock valuation is simple. However, predicting the future is not as simple and can be complicated. Market Valuation of StockMarket and investors value stock differently. The market depends on expectations and recent information available to the market. The markets value of stock are usually based on past history and trends. Based on current economic conditions we look at the past and see how it would look loss forward. Through use of charts, value lines, or other indicators, the market looks at certain things such as floors, ceiling, resistance points, when valuing stock. The stock value is a corporate price based on numerous variables considered, equaling a companys worth combined with social trends a nd economic factors. The most common value of a stock for the market is the open and close prices.NASDAQ uses an auction approach called theory baffle and closing cross to determine stock prices (Stock Market Prices, 2014). The opening cross uses computer software to determine opening prices for stocks based on night trading buying and selling of stock during close of business. The closing cross software calculates closing price based onthat days trades. The technology takes into consideration each trade made at the exchange and sets what is referred to as the fairest closing price. The final stock prices are released after close of the exchange and work as a main factor for night trading. The amount an investor is impulsive to pay is often dependent on the prices set by the market.Stock Market Prices. (2014). http//money.howstuffworks.com/nasdaq-opening-closing- cross1.htmKansas, D. (2014). Evaluating a Stock. Wall Street Journal. Retrieved from http//guides.wsj.com/personal-fin ance/investing/how-to-evaluate-a-stock/.