Stock Advisor Stock Valuation Techniques

Question 1

What is 'intrinsic value' in stock valuation?

Accepted Answer

The estimated true worth of a stock based on fundamental analysis, independent of its market price

Answer

The current market price of a stock

Answer

The book value of a company's assets

Answer

The average of analyst price targets

Question 2

What does 'EV/EBITDA' measure and why is it used?

Accepted Answer

Enterprise value relative to earnings before interest, taxes, depreciation, and amortization — useful for comparing companies regardless of capital structure

Answer

Equity value relative to earnings before taxes — used for financial companies only

Answer

Total enterprise value divided by annual revenue — used only for startups

Answer

Earnings value divided by total assets — used to compare return on assets

Question 3

What is 'dividend discount model' (DDM) used for?

Accepted Answer

Valuing a stock based on the present value of expected future dividends

Answer

Calculating total dividends received over a period

Answer

Comparing dividend yields across peer companies

Answer

Estimating ex-dividend date price adjustments

Question 4

What is 'precedent transaction analysis' in stock valuation?

Accepted Answer

Valuing a company by looking at prices paid in similar M&A deals

Answer

Reviewing past earnings revisions to project future growth

Answer

Analyzing historical insider trades for valuation signals

Answer

Comparing past P/E ratios to current ones

Question 5

What is the 'PEG ratio' and what does it add over the standard P/E?

Accepted Answer

Price-to-Earnings-Growth ratio — adjusts the P/E for the company's earnings growth rate to better assess valuation

Answer

Profit-to-Equity-Growth ratio — measures earnings growth versus shareholder equity growth

Answer

Price-to-EBITDA-Growth ratio — adjusts EV/EBITDA for revenue growth

Answer

Portfolio-to-Earnings-Guidance ratio — compares portfolio returns to company guidance

Question 6

What is 'enterprise value' (EV)?

Accepted Answer

The total value of a company including market cap, debt, and minus cash — representing what an acquirer would pay

Answer

A company's stock market capitalization only

Answer

Total assets minus total liabilities on the balance sheet

Answer

Annual revenue multiplied by the industry average P/E