Metrics and methods for judging whether a share price is expensive or cheap relative to a company's earnings, assets and cash. 28 terms in total.
Share price multiplied by shares outstanding: the value the market puts on the whole company. It is the first thing to check when comparing company size within an industry.
e.g. $10 share price × 100 million shares = $1 billion market cap
Market cap plus debt, minus cash on hand. Buying a whole company means taking on its debt as well as paying for the shares, so this is closer to a real takeover price.
e.g. $10B market cap + $3B borrowings − $1B cash = $12B EV
Share price divided by earnings per share (EPS). It shows how many years of the company's earnings you are paying for in the price. Lower means cheaper relative to earnings, though fast-growing companies often keep a high PER.
e.g. A PER of 20x means that, at current earnings, 20 years of profit would equal the market cap.
PER calculated from the earnings the company actually made over the last four quarters (12 months). The figures are already confirmed, so it is accurate, but it does not reflect future growth.
PER calculated from earnings expected over the next 12 months (the average of analyst estimates). If earnings are expected to grow fast, it comes out lower than TTM PER. LightView reports show both TTM PER and Forward PER.
Net assets (assets minus liabilities) divided by shares outstanding. It can be read as the book value left per share if the company closed today and paid off all its debts. It is used to calculate PBR.
Share price divided by book value per share. Below 1x means the stock trades for less than the company's net assets. It is widely used for asset-heavy industries such as banks and insurers.
Annual sales divided by shares outstanding. Dividing the share price by SPS gives PSR. It is used to gauge the size of a company on a per-share basis when it has no earnings yet.
Market cap divided by annual sales. It is used instead of PER to compare growth companies that are not yet profitable.
Enterprise value (market cap plus net debt) divided by EBITDA (operating profit plus depreciation and amortization). It lets you compare heavily indebted and lightly indebted companies on a level footing.
PER divided by the earnings growth rate (%). It reflects that even a high PER may not be expensive if earnings grow just as fast. Around 1x is the usual reference point for high versus low.
e.g. PER of 30x with 30% annual earnings growth gives a PEG of 1x
The inverse of PER (EPS ÷ share price). It shows the percentage return in earnings you get from owning the stock, which makes it easy to compare with deposit or government bond yields.
e.g. PER of 20x gives an earnings yield of 5%
Dividends per share received over one year divided by the current share price. When the price falls, the yield rises, so also check whether the dividend can be sustained.
e.g. $50 share price with a $2 annual dividend gives a 4% dividend yield
The share of net income paid out as dividends. If it is too high, the dividend may be cut when earnings fall; if it is low, there is room to reinvest profits or raise the dividend.
A catch-all name for metrics such as PER, PBR and EV/EBITDA that show how many times earnings or assets the share price or enterprise value represents. Comparing multiples of companies in the same industry helps estimate fair value.
Comparing the multiples and growth rates of competitors (peers) in similar businesses side by side. Average PER differs greatly by industry, so comparing against peers is more accurate than comparing across industries. The peer table in LightView reports works this way.
A price that looks reasonable based on the company's earnings, cash flow and assets. Results vary widely with the method and assumptions, so it is better viewed as a range than a single right answer.
The fair share price over the next 12 months set by a brokerage analyst. The average of targets from several brokerages is called the consensus. LightView shows third-party price targets for reference only.
The percentage the current share price would need to rise to reach the average price target. Targets change often, so look at the direction (raised or cut) as well as the number itself.
A stock is at a premium when its multiple is set higher than a comparison group and at a discount when it is lower. High growth and market dominance justify a premium; governance problems and low growth justify a discount.
The tendency for Korean stocks to trade at lower multiples than similar foreign companies. Low dividends and shareholder returns, complex ownership structures and geopolitical risk are commonly cited reasons.
Re-rating is when the market raises the multiple it assigns to a company; de-rating is when it lowers it. Even with the same earnings, the share price can rise sharply if the market accepts that the business has fundamentally changed.
e.g. A company trading at 10x PER that earns a 20x PER after a new business succeeds has been re-rated.
A method that forecasts the cash a company will generate in the future, discounts it back to today's value and adds it up to estimate the company's value. It is the most fundamental valuation method in theory, but small changes in growth or discount rate assumptions can change the result a lot.
The rate used to convert future money into present value. In company valuation, the weighted average cost of capital (WACC) is most often used, blending the returns expected by shareholders and lenders. When interest rates rise, the discount rate rises and the present value of future earnings shrinks.
Treats today's share price as correct and works backward to find how much the company must grow for that price to be justified. It is used to see what expectations the market holds and whether those expectations are realistic.
A valuation method that values each business segment of a multi-segment company separately and adds them up. It is often used for holding companies and conglomerates that run very different businesses.
The cushion you get by buying at a price well below your estimated fair value. It helps limit losses if your valuation is wrong or something unexpected happens.
e.g. If fair value is estimated at $100 and you buy at $70, the margin of safety is 30%.
A stock that looks cheap on the numbers but whose business keeps getting worse, so the price never rises or falls further. Check whether the low PER simply reflects expected earnings declines.