Determining what a stock is worth does not have to be a complicated process if you have the right tools to help you. There are 4 steps to generating a valuation using the Stockcalc website. www.stockcalc.com
In the last blog we outlined the process involved
In this we will dig a little more into the 4 steps: I am using the Stockcalc website to do these calculations and for full disclose am company President.
The 4 Steps (once you have selected a company)
1) Determine what the cost is for the funds needed to run and grow the business. We call this the Weighted Average Cost of Capital or WACC. Large, stable companies have a lower WACC than more speculative companies.
2) Forecast the company’s financials into the future based on assumptions you have or are able to get from Analysts that cover the company. We have a number of forecasting tools on the site starting with Analyst forecasts and Growth projections all the way to using a blank page and creating the forecast yourself.
3) Value the company using Valuation models such as a Discounted Cash Flow (DCF) where you include the financial forecasts, WACC and other calculations and assumptions such as Capital Expenditures needed and Debt levels. The site has a full DCF framework for you to calculate with and auto-populates each cell to get you started.
4) Test your assumptions, see how sensitive the company is to the inputs. Testing your assumptions is a critical part of valuation work. When you get a different valuation than you see a company is trading for on the stock exchange you need to ask why, and test. You may have uncovered an opportunity.
Here is a valuation I recently did for Lowes Companies Inc. using this 4 step process.
And here is the process explained on Video for Alphabet (GOOG)
Valuation is part art, part science. The assumptions you make impact the company’s value. For example, if you think the WACC is 8% instead of 9% the company will calculate to be more valuable because its cost to service its capital will be lower.
Here is a tool you can use for free to quickly test your assumptions :
Simply load a symbol or name into the Symbol text box and select the company from the dropdown. Test the valuation by changing the growth rates, WACC, Free Cash Flows etc.
If you are not sure where to begin you can select a company you are familiar with (GOOG, AAPL) and work though the steps above on the Stockcalc site. Each of these steps are found on the Research Page which you can access either by clicking the Research Button or selecting Research from the dropdown menu next to the Stockcalc logo (both are on the Dashboard)
If you would like to explore the Stockcalc website and quickly run valuations like simply create an account at www.stockcalc.com (Start with a 14 day free trial) Use the walk-throughs (click the walking man icon), videos (video icon on each page) or the help menu to help navigate the site. The site has a number of tools for data query, backtesting, forecasting and valuation. We have a no restrictions Stockcalc 14 Day Free Trial available as well.
If you would like the above valuation to test simply send us a note from Stockcalc’s “Contact Us” on the dashboard.