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Jae Jun over at Old School Value has just released a free e-book on stock valuation methods. The name of the e-book is The Ultimate Guide to Stock Valuation and it covers 8 different techniques to calculate the value of a particular stock. The e-book is a great supplement to the Stock Analyzer product that is available for sale at Old School Value. By the way, I’m a user of the Stock Analyzer which I purchased a couple of years ago.
8 Valuation Techniques covered in the e-book:
- Net Net Working Capital and Net Current Asset Value
- Balance Sheet/Tangible asset valuation
- Benjamin Graham Valuation Formula
- Earnings and Growth stock valuation
- Discounted Cash Flow (DCF)
- Cash Flow Valuation
- Reverse DCF
- Cash flow Valuation of market expectations
- Katsenelson Absolute PE Model
- Fundamentals based multiples
- EBIT Multiple Valuation
- Multiples Method
- Absolute Reproduction Value
- Balance Sheet Valuation
- Earnings Power Value (EPV)
- Adjusted Earnings Valuation
Each valuation technique is covered with an explanation of the method, along with constraints of the method. Each technique has at least one example of how to apply the technique. The e-book is targeted towards a new or beginner investor that wants to solidify some of the basic methods of valuing a stock that value investors use. I like the fact that Jae has mentioned in the e-book multiple times that valuation is more art than science, and that each method has its pluses and minuses, and shows many examples to make sure the reader doesn’t get caught up in the fact of trying to be too exact on the result.
The ebook is FREE, but will require providing your email address, or by “paying by Tweet”. Old School Value creates high quality and useful information, so it’s a good thing to give your email address.
My only point on contention around the DCF valuation method and terminal value. I’m not a big fan of using DCF as it can give drastically different valuations based upon different projections of the future. If you are off a little on your projection, the valuation be very far off the mark. The Terminal Value can be a large percentage of the end valuation result depending on how far out you are projecting cash flows. If you are projecting out 20 years of cash flows, the terminal value will be a much smaller component of valuation result, however, the accuracy of those 20 years of cash flows will be very low. 20 years is a long time, and very hard to project accurately. If you project out 5 years of cash flows, the terminal value can be a larger percentage of the valuation result, and that is problem. If you are using 3% as the terminal growth rate, you are saying that the company will grow cash flows at 3% in perpetuity, and that value is a large part of your valuation. This isn’t very accurate. Again, I’m not a big fan of using DCF as an accurate valuation method. It does have its uses, but limited.
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