What is Stock Valuation?
Stock valuation is the process of determining the intrinsic (fair) value of a company’s shares based on its financial performance, growth prospects, assets, and future earnings.
It helps investors answer one important question:
“Is this stock worth its current market price?”
If the intrinsic value is higher than the market price, the stock may be undervalued. If it’s lower, the stock may be overvalued.
Why is Stock Valuation Important?
Valuation helps investors:
- Avoid overpaying for popular stocks
- Identify undervalued investment opportunities
- Estimate future returns
- Compare companies in the same industry