Skip to main content


Relative value method to calculate intrinsic value of stock


This method is not popular as the DCF model for calculating intrinsic value of any stock because of its simplicity.  In this method you compare your stock with other companies stocks to get your intrinsic value.
Intrinsic value and how to calculate intrinsic value of any share?
Relative value method to calculate intrinsic value of stock
Relative value method to calculate intrinsic value of stock


Intrinsic value = [industry PE ratio] * [earning per share (of my company)]


Let assume, there is one cement company ABC and share of it trading at the price of Rs. 60 and earnings per share of ABC company is Rs 5. Then for calculating its intrinsic value we need cement industry’s PE ratio that is 28. Now calculate intrinsic value:-

Share price of ABC company = Rs 60
Earnings per share of ABC company = Rs 5
Cement industry PE ratio = 28
Intrinsic value = [industry PE ratio] * [earning per share (of my company)]
                        = 28 * 5
                        = Rs 140
EV/EBITDA and It's analysis

Limits of using Relative value method:-

It’s a not standard method to calculate intrinsic value of any stock, this method popular only because of its simplicity or very simple to use. What reasoning works in it, who knows?
For calculating intrinsic value of any stock DCF method is standard method.



Popular posts from this blog

My Investments and COVID-19

Everyone has witnessed huge market decline in the month of March when our PM Narendra Modi suddenly announced lockdown to tackle covid pandemic. Sensex stock market index reached all time high of 42273.87 in January of 2020 and from there it fallen down to below 26000 pts, nearly 40 % down. And from there it started healing. My Investments and COVID-19 Before this great fall my all investments were in undervalued stocks with very low P/E multiple, attractive earnings and exciting track record. Thanks to this quality stocks my own portfolio fall nearly 22 %. Although my 22% of capital vanished, I feel very delighted my portfolio beaten the market index(Sensex down nearly 40%) with significant points.  In the last year of your college generally you are not backed with huge capital support, and your capital is very limited. So securing capital is my first priority. Back on the track, I sold all the stocks with 22 % capital loss and secured rest of the principle capital

Why some investors give stocks so high PE?

PE ratio also known as Price to Earning ratio and the most popular ratio among the investors. They use this to identify undervalued or overvalued stocks.  we already covered what is PE ratio and how you can utilize this ratio, if you want to learn about this then simply click here . The very basic logic behind PE is, If earnings low then PE high and If earning high then PE low. In general parlance if stocks PE high then it considered as overvalued and if stock comes with low PE then it considered as undervalued. Generally people avoid investing in stocks with high PE but everything comes with exceptions.  Stocks with high PE means "people and investors are willing to pay high prices for low earning stocks". Why people or investor doing so ? there can be various reason behind this, after all its a stock market and everyone have their own perception. Reasons can vary person to person. There can be various reason for paying high PE stocks and one reason can be,  Investors are ve

Important ratios for stock analysis

Important ratios for stock analysis PE ratio:- PE ratio also known as the price to earning ratio and very famous between the investors. Investors use this ratio with other ratios or data to find out undervalued stocks. Read more Important ratios for stock analysis Earning per share:- In simple meaning it means “distribution of company’s profit between each shares” it can be used as the indicator for determining company’s profitability. It is best to use PE ratio and Earning per share comparatively. Return on Assets:- Is company using its assets effectively to generate income, yes or not? This ratio tells us the truth. This ratio gives us idea about management efficiency or capability to run company profitably. It compares company’s earnings as compare to its assets Dividend payout ratio:- It means “amount of dividends paid to stockholders relative to the amount of total net income of a company” Dividend payout ratio = Dividends / Net Income. Retention Ratio:- What c