There are generally three ways to determine the intrinsic value of a stock :
- The price – earnings ratio method
The price-earnings ratio method is the most common and common method in the stock market to determine the intrinsic value of a stock. Generally speaking, the average price-earnings ratio in the stock market is determined by the one-year bank deposit rate. For example, the one-year bank deposit interest rate is 3.87%, which corresponds to an average price-earnings ratio of 25.83 times in the stock market. If the price-earnings ratio is higher than this, the price will be overvalued, otherwise, it will be undervalued.
- Asset Appraisal Value Method
It is to evaluate all the assets of the listed company , deduct all the liabilities of the company, and then divide it by the total share capital to obtain the value of each share. If the market price of the stock is less than this value, the stock is undervalued, and if the market price of the stock is greater than this value, the stock is overvalued.
- Sales revenue method
It is to divide the annual sales revenue of the listed company by the total market value of the listed company’s stock. If it is greater than 1, the stock value is undervalued, and if it is less than 1, the stock price is overvalued.