Methods to value shares

jonnybravo

Just wondering what methods people use to value share. How do you decide that a share is undervalued? Do you compare it against prior share levels? future profit? industry standards for financial ratios?

I'm only starting researching shares and I appreciate any insight that people can give or any books about valuing shares that people would suggest. I know that I'm better off doing my own research but I suppose the area that I'm struggling with is in analysing the ratios and putting that into context with the share price.

bfh

best man to take advice from is warren buffett! and hes very generous with his advice!
have a read of his annual letters, books, youtube clips etc

he says - "the intrinsic value of a company is a discount of its future earnings"

you need to learn time value of money formulas e.g (1+i)^n + (1+i)^n+1 ...... to be able to discount earnings - very easy to learn

as a basic measure to value a company you might take the average of the last 3 years cash profits and multiple by 10 for a normal business i.e your getting a 10% return per year from investment

for a business like Paddy Power (seriously good business) you might multiply cash profit by 15 - 20 as it is impossible for paddy power not to be making more profit in 5 years than this year

its quite simple really - you cant go wrong reading everything on Buffett, Good Luck!

jonnybravo

bfh wrote: »

best man to take advice from is warren buffett! and hes very generous with his advice!
have a read of his annual letters, books, youtube clips etc

he says - "the intrinsic value of a company is a discount of its future earnings"

you need to learn time value of money formulas e.g (1+i)^n + (1+i)^n+1 ...... to be able to discount earnings - very easy to learn

as a basic measure to value a company you might take the average of the last 3 years cash profits and multiple by 10 for a normal business i.e your getting a 10% return per year from investment

for a business like Paddy Power (seriously good business) you might multiply cash profit by 15 - 20 as it is impossible for paddy power not to be making more profit in 5 years than this year

its quite simple really - you cant go wrong reading everything on Buffett, Good Luck!

Thanks for the reply. Yeah planning on reading a few books. Have read alot of different methods on the internet and was just interested to see what different posters here used.