Thread by @finologyticker

How to find out if the stock is Undervalued or Overvalued?

One method is DCF valuation.

Let's understand it. 🧵

The Discounted Cash Flow (DCF) valuation method is a way to estimate the intrinsic value of an investment by calculating its future cash flows and discounting them back to the present.

Sounds complicated?

We have built it for you in ticker. 💙

This method can be used to value stocks in the Indian stock market by following the below steps:

Steps:

1. Identify the company's future cash flows.
2. Determine an appropriate discount rate.
3. Discount the future cash flows to the present
4. Sum the present values of all the future cash flows to determine the intrinsic value of the investment.

1. Identify the company's future cash flows.

This typically includes forecasting the company's revenues, expenses, and other cash flows over a period of time (e.g. the next 5-10 years).

2. Determine an appropriate discount rate to use.

This is the rate at which future cash flows are discounted to their present value. The discount rate should reflect the time value of money and the risks associated with the investment.

3. Discount the future cash flows to the present using the chosen discount rate.

This step involves applying the formula for present value, which is the future cash flow divided by the discount rate plus one, raised to the power of the number of periods in the future.

4. Sum the present values of all the future cash flows to determine the intrinsic value of the investment.

You can try the inbuilt DCF calculator in ticker.

Enter your assumptions and discount rate and get the fair value of any stock.

➡️ Try it out now at ticker.finology.in/tickerplus

It is important to note that the DCF valuation method is just one way to estimate the intrinsic value of an investment.

The results of a DCF analysis should be considered alongside other factors such as the company's financial performance and industry trends.

#investing

🤔 Can DCF valuation be applied to all companies?

In general, DCF valuation can be used to value any company that has predictable future cash flows, such as a company with a stable business model and reliable revenue streams.

#stockmarkets

Limitations to using DCF valuation

1. DCF valuation may not be appropriate for companies with highly volatile or unpredictable cash flows.

(such as companies in the early stages of development or companies operating in industries with rapid changes in market conditions)

#adani

2. The accuracy of a DCF valuation will depend on the quality of the assumptions and inputs used in the analysis, and can be affected by biases or errors in these assumptions.

#stocks

Overall, while the DCF valuation method can be a useful tool for investors, it is important to be aware of its limitations and to use it carefully and cautiously.

#business

Check out more inbuilt valuation method on Ticker plus.

• Visit ticker.finology.in/tickerplus
• Get DCF calculator, Earnigns multiple, PB valuation , DuPont analysis, etc.
• Also access premium courses from Quest and Stocks recommendation from Recipe.