How to know if price of a Stock is right for buying ?
I’m a beginner in Stock market & I don’t know many things. I’m in a situation where I can’t decide what is the right price to pay for a stock.
I have did all my calculation & checks I know, but how do I know whether the stock is overpriced or trading lower than what it’s real value is.
I also have read articles about same but can’t really get the idea of valuation.
Hi Parul,
I think the answer to your question differs for every investor. Some investors go deep into valuing a company based on the future potential, and some depend on comparables to other companies in thr sector. And some folks might event look at charts and invest based on that.
But from valuation standpoint, the first step always is to understand the story of the business you are trying to ascribe a value to. For example - Uber, if you are valuing Uber, you’ll have to understand what, why and how of the company. And then also understand how the company will grow over a period of time and generate profits that you can own a piece of by buying the stock.
The mathematical models for generating the enterprise value of the business is available in several forms, but the critical piece will be to plug in the numbers in these models using your view of the business. Which might be different than other’s view.
It is very hard to increase the positions in stocks you hold than buying them. If you don’t, then you might be lucky that it’s down and lost a lil. If it’s up, then you missed the opportunity.