Methods Used To Value Stocks

Many methods or models have been developed to help financial analyst to value stocks. Some of these models are simple mathematical formulas that are meant only to give a general impression of stock value. Some models are complex and require computer software to give a more precise stock value based on many earning estimates. These complex models of valuing stocks often consume time, stock risks, rate of returns, dividends, book value, future earnings, as well as current market conditions to determine the price of the stock.

Investors and financial experts also rely on a number of famous models to value stock:

Basic ABO Model for Valuing Stock

This method, the Edwards-Bell-Ohlson model, considers rate of returns, dividends, risks, book value, time, and future earnings to determine value of stock.

The Risk Proxy EB You'll Model for Valuing Stock

This method of valuing stock does not consider risk and beta, which is used by other models. Instead, this method uses proxies to evaluate risk. This means that factors that investors have determined indicate risk are used instead of beta at risk to value stock. Specifically, high market capitalization, the number of analysts covering a stock, variation in estimated earnings, and debt to market ratio are all considered.