Valuing a stock

  1. Discounted Cash Flow method (DCF) — popularized by Warren Buffet
  2. Intrinsic value — [EPS × (8.5 + 2g) × 4.4]/Y
  3. Graham’s number — Square Root of (22.5) x (TTM EPS) x (Book Value per Share)
  4. X times revenue/profits (where X depends on industry type, example IT Services industry would be anywhere between 2 to 4 times the revenue, 15 to 20 times earnings)
  1. Sound management
  2. Company’s competitive advantage (MOAT)
  3. Does the company have zero or acceptable debt
  4. Industry outlook for the future
  5. Prospects for growth for next 10 years
  6. Do I understand the business model?
  7. Competitor analysis
  8. Does the business have pricing power?
  9. Market share & mind share?
  10. What are the downsides?
  11. Free cash flow
  12. Gross Margins, ROCE, ROE
  13. Earnings growth last few years
  14. Interest coverage ratio

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