Glossary of Terms
Companies that are very similar to the company being valued. These companies will most likely be direct competitors and will offer the same or very similar products or services to a similar geographic or demographic consumer base. These companies should have similar operating margins, such as Profit Margin and Return on Equity. ValueMyStock’s Valuator™ formula uses the stock prices and price-to-performance ratios of your selected comparables to calculate the intrinsic value of your stock. Learn how to find quality comparables
Purchasing a stock with the expectation the price will increase without regard for the true value of the stock. Reasons for purchasing a growth stock include market momentum, analyst’s future price projections, new product lines or market capitalization. Growth Investing is the opposite of Value Investing.
Purchasing a stock for the purpose of holding that stock for a very short period. Most day traders are in and out of a position within the trading day, hence the term “Day Trading.” This form of speculating seeks to profit from the daily ups and downs of market volatility without regard to the intrinsic value of the stock.
The price that a stock should sell for if properly priced in a normal market. Also described as the true value of a stock.
Margin of Safety
A threshold that Value Investors place upon their stocks before purchasing. ValueMyStock recommends a minimum Margin of Safety of 30%, meaning that the selling price should be at least 30% less than the intrinsic value before the stock is considered undervalued.
These are ratios that allow investors to quickly compare the performance of a stock to it’s current price. Ratios used in our Valuation by Multiples formula include:
- Price-to-Earnings (P/E)
- Price-to-Sales (P/S)
- Price-to-Book Value (P/BV)
- Price-to-Cash Flow (P/CF)
- Price-to-Earnings Before Interest, Taxes, Depreciation and Amortization (P/EBITDA)
Financial reports and other documents every publicly-traded company must submit to the Securities and Exchange Commission. Reports often used by Value Investors include 10-Q (filed quarterly) and 10-K (filed annually) reports. These reports are often found on a company’s website or through FreeEDGAR.
The current price a stock would sell for in the open market. Also known as the Bid.
Purchasing a stock that appears underpriced based upon current and historical performance and the prices of the nearest competitors and selling the stock once it reaches intrinsic value.