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What is meant by the term stock valuation

Stock valuation is a process that is used to calculate the price or actual value of the stock. Stock valuation is the primary requisite for making an informed and wise investment in the stock market. Without proper valuation of the stock you should never invest in the company no matter how well that particular company has featured in the recent past. If the value of the stock is not that strong, you can not make profit from that stock in the long run.

If you have done the stock valuation right, you need look into the stock chart every now and then and worry about your investment. On the other hand investing in a stock without proper stock valuation would mean that you have entered into a dark lane where you have no clue about the entries and the exits. So, if you are interested to make some profitable investment and take wise decisions while investing in the stock exchange, stock valuation is the first thing you need to do.

Stock valuation is the process that is believed to be the domain of the experts. But that is not really true. You need not be a finance analyst or MBA to do the stock valuation. It requires a little mathematical skill and patience to do the stock valuation. There are different methods for stock valuation that are followed by the experts. Basically there are two ways that are followed for stock valuation – one is the fundamental criteria, that is based on different economic criteria. Another method is called the market criteria that is calculated on the basis on different parameters of the stock market. While the economic criteria give the fair valuation of the stock, the market criteria basically gives out the real price.

For the proper valuation of the stocks, it is important that you consider the market criteria along with the economic criteria. In reality it is often seen that there is a huge difference in the economic criteria and the market criteria. So, it is always wise to do the valuation in both ways to get the exact idea about the value of the stock. After you have done the proper valuation of the stock, you can easily determine if a stock is over priced or under priced in the current price and can decide about which stock to buy and which one to sell. In short the stock valuation significantly reduces the risk factor of the stock market investing.



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