Introduction

It would be incorrect to assume that there are no forces at work behind assigning values to stocks. Many of the novice investors tend to think that the buying and selling of stocks is the only thing that really affects their value in a great way, but the truth is that there are a number of people consistently involved in a process that provides the stock valuation that the companies require. While it is definitely true that there is a method to the valuation of stock, it would also be incorrect to assume that this method is fixed, exact and immutable. In fact, stock valuation is nowhere near an exact science but at the same time there are a number of methods that are utilized in the valuation of stock that produce the results that you see when you take a look at a stock’s profile online or at a stock exchange broker.

ABO Method

The ABO method for stock valuation is perhaps the best known method and the one that is used the most often in order to create a general idea for what the value of a particular stock might be. The ABO method takes a look at the rate of return for the stock, the stock’s dividends and a number of other quantitative methods. It then plugs the values for these methods into a pre-determined model which then creates a final number for the value of a particular stock.

Risk Proxy EB Method

Generally speaking, there are two different ways that one can quantify the risk variable when it is applied specifically to investment in stocks. One way to do this is through the use of something known as the beta index at risk and another way to do it is through factors that investors consider important to the higher or lower risk for a particular stock.

While the former method is the one that is more quantitative in nature, the latter method can be considered more useful to accurate valuation because it takes into account the opinions of the investors who by their own behavior have the ability to influence the price of a stock once it is on the market. The Risk Proxy EB Method utilizes these investor risk opinions in place of the beta in order to come up with a quantifiable price for the stock value.

PEG Method

The PEG method, in addition to continuing the stock market’s fondness for acronyms in their terminology, is also one of the simplest stock valuation methods that are currently in use. In order to use the PEG method for stock valuation, an evaluator needs to know the price per earnings ratio as well as the growth rate of the stock. These two numbers are then compared in order to derive a valuation amount for the particular stock that is in question.

Forward P/E Method

The forward P/E method is a method that utilizes extrapolation in order to arrive at stock prices not only in the present but also stock prices for the future. This is because an average stock will have a P/E ratio that tends to remain the same over time and this is why knowing information about the earnings and extrapolating that information into the future can suggest a pathway for the valuation of the stock to evolve.

Computer Modeling

Stock valuation is one of the areas in which computer modeling has been very helpful as there are now a number of different models that people use in order to create valuation lists for different stocks. Doing a quick internet search for stock valuation software will show you just how big a field this has become and through computer modeling the stock valuation methods continue to get more and more involved as time goes on.