Power of Stock Valuation Study


Friends, we have a wonderful and significant topic to cover today regarding stock valuation.

Why is stock valuation necessary? 

Why should every investor learn how to value stocks?

Does it actually assist us in making financial decisions?

I really hope you find the answers to all of your questions....

Friends Let's Go...

Suppose we are driving a car at 100 km/hr over a distance of 1000 km without stopping. If we run at a constant speed of 100 km/hr, we can complete the distance in 10 hours.  Because we are aware that the speed is constant, we can determine this time.

However, in the same scenario as earlier when we are travelling 1000 miles, this time our pace is unpredictable and we are stopping sometimes. Because of this, we are unable to determine if it will take 15 or 20 hours to get at our destination.

The aforementioned example makes it very evident that we can forecast the time it will take to get at our destination if we know the constancy of our speed.

We will now attempt to apply this circumstance to the stock market. If we are aware of the consistency of our stock's growth and the pace at which it is expanding, we can forecast the future growth rate and therefore the relative price movement of succeeding stocks with ease.

In earlier articles, we learned how to do stock valuation and determine their entry and target prices [with steady growth rates]. Importance of Stock Valuation

We will now examine the accuracy of the stock valuation analysis.

In order to comprehend the "Power of Stock Valuation" better, we have one case study.

We looked at Infosys' price changes from FY19–20 to FY23–24.

Using the stock valuation approach, we forecast the entry and target prices for each of the following years: FY19–20, FY20–21, FY21–22, FY22–23, and FY23–24 and tracked those prices. 
Additionally, we have recorded Infosys' actual 52-week high and 52-week low price movement for the relevant years.

In above graph the

Dark Green Colour Indicate – 52 Week High Price
Light Green Colour Indicate – Target Price
Blue Colour Indicate – Entry Price
Red Colour Indicate – 52 Week Low Price

Basically, we have determined the Target and Entry prices of the stock for each year using the stock valuation approach [methods 1 to method 6, As shown in table 1]. then kept track of it throughout the year to obtain the stock's 52-week high and low values. As you can see, the 52-week high is always higher than our calculated Target Price and the 52-week low is always lower than our derived Entry Price.

This process makes it extremely evident that we can calculate the target and entry prices for stocks each year. After that, if the stock is trading below the entry price, we will purchase it, and if it is trading above the target price, we will sell it. 

Now there is no longer a need to constantly monitor stock price changes. To purchase or sell the stock, we only need to calculate the target and entry price once a year and keep track of it.

Disclaimer: This post is not considered a recommendation to buy, sell, or invest in any company; it is just intended for educational purposes. The stock name is used just as an example and for study purposes in this article. Do your research and due diligence before making an investment, and talk to your financial advisor.

Post a Comment