Before investing in stocks investor should know the status of the stock, understand its current value & if it’s at it’s lowest then one should decide to buy the stock. This presentation helps us understand and analyze what is the right time to buy stocks.This information has been brought to you by Kotak Securities, We also offer real time <a href="http://www.kotaksecurities.com/stock-market-news/equity/1000/equity-market/NSE/ALL/ALL“>share market news</a> and best in class <a href="http://www.kotaksecurities.com/whatweoffer/trinityaccoun.html">3 in 1 online trading account</a>.
Before investing in stocks investor should know the status of the stock, understand its current value & if its at its lowest then he should decide to buy the stocks. This presentation helps us understand and analyze what is the right time to buy stocks.This information has been brought to you by Kotak Securities, We also offer real time share market update and news.
Understanding Cheap Stocks
• To quote the Oracle of Omaha, Warren Buffet: It's far better to buy a wonderful
company at a fair price than a fair company at a wonderful price!
•The golden rule for any investor is to buy when stock valuations are at a low, so that
he can sell them when they rise in value and book good profits.
•Valuation is the current worth of an asset or a company.
•Valuation has to be considered in the context of the company’s management, capital
structure, past performance, expected future earnings and current market price.
•When considering valuation, it is important to note a few other relative terms such as
the P/E Ratio or EPS.
•A price to earnings multiple or the P/E ratio is the share price of the company divided
by the expected earnings per share or EPS.
•EPS, in turn is further computed by dividing a company’s net profit by its total
number of issued equity shares or paid up capital
Pricing Cheap Stock
•The value of a stock is cheap if it is trading at a low historical price to earnings
multiple but has a high or a rising return on equity.
• This means that the company is generating or is capable of generating profits but
the current share price is down, given a variety of factors like market
conditions, global recession, policy issues etc.
•Analysts usually use the P/E ratio calculated on the basis the one-year forward multiple
which is the expected earnings per share in the span of the next financial year.
• Some analysts value stock on the basis of the company’s book value. The book value of
a company is – total shareholders’ funds / no. of paid-up equity shares.
• The share price as a multiple of book value gives us a price-book ratio. If the multiple is
low and prospects for growth are high then the stock is considered cheap.
• If we add the net long term debt to the shareholders’ funds, it gives us the Enterprise
Value which is normally the price which one will have to pay to buy the entire company.
Impact of Economy
•There are some shares that have been trading
at discounted prices as compared to their
price- book value given domestic and global
paralysis and recession.
• Any turnaround or change in current
economic conditions would help them rise in
value and thus, currently make them lucrative
•As buyers or investors, it pays to remember that cost and worth do not mean the same
• While cost is what you pay, worth is what you get. When considering buying stocks
cheap, do not only consider price - Do consider its worth a few months from now.
• If it is worth more, invest in it and strike a bargain. If not, find one that is, buy and
hold. Markets are cyclical.
• Every low will be followed by a high and it’s a matter of time.
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