Stock valuation models are techniques used to determine a company's stock intrinsic value, helping investors identify overvalued, undervalued, or fairly valued stocks. Key models include the discounted cash flow (DCF) model, which analyzes future cash flows, the price-to-earnings (P/E) ratio, which compares share price to earnings, and the dividend discount model (DDM), focusing on dividends. Relative valuation models assess valuations against similar companies using various metrics like P/E and price-to-book (P/B) ratios.

1. Stock Valuation
Models
Understanding Different Models for Valuing Stocks

2. What are Stock
Valuation
Models?
• Stock valuation models are
methods used to determine the
intrinsic value of a company's
stock. These models help
investors assess whether a stock
is overvalued, undervalued, or
fairly valued.

3. Discounted Cash
Flow (DCF) Model
• The DCF model estimates the value of
a stock based on its expected future
cash flows, discounted back to their
present value. This model considers
the time value of money and provides
a detailed analysis of a company's
financial performance.

4. Price-to-Earnings
(P/E) Ratio
• The P/E ratio compares a company's
current share price to its earnings per
share (EPS). A high P/E ratio may
indicate that a stock is overvalued,
while a low P/E ratio may suggest that
it is undervalued.

5. Price-to-Book
(P/B) Ratio
• The P/B ratio compares a
company's market value to its
book value. This ratio helps
investors understand how much
they are paying for a company's
assets relative to its book value.

6. Dividend Discount
Model (DDM)
• The DDM values a stock based on
the present value of its expected
future dividends. This model is
particularly useful for valuing
companies that pay regular
dividends.

7. Relative
Valuation
Models
• Relative valuation models
compare a company's valuation
metrics to those of similar
companies in the industry.
Common relative valuation
metrics include the P/E ratio, P/B
ratio, and EV/EBITDA ratio.