Investing in stocks requires a thorough understanding of the key metrics that can guide your decision-making. Different sectors have unique characteristics, and evaluating stocks within these sectors demands a tailored approach. Here are some essential metrics to consider:
| Sector | Metrics For Valuation |
|---|---|
|
Banking |
PE and Price to Book Value(P/BV) or Adjusted PBV multiple. |
|
Cement |
PE, Enterprise Valuation to Earnings before intetrest, tax, depriciation & amortisation (EV/EBITDA), EV/Tonne |
|
Engineering |
Forward PE, which reflects the order book position of the company |
|
FMCG |
PE, Return on Equity (RoE) and Return on Capital Employed (RoCE) ratios. |
|
Real Estate |
Net Asset Value(NAV), which is book value at market prices. Also look at debt levels. |
|
Telecom |
PE and DCF, beacause there is future stream of cash flows for upfront heavy investment. |
|
Oil & Gas |
Residual Reserves of energy assets |
|
Technology |
Trailing PE and its Growth. |
Table Source From: MVP-Mutlibaggers & Value Picks Telegram Channel.
Here are short definitions for the financial terms you’ve mentioned:
P/E Ratio (Price-to-Earnings Ratio): A valuation metric that compares a company’s current share price to its earnings per share (EPS). It indicates how much investors are willing to pay per Rupee of earnings.
P/BV Ratio (Price-to-Book Value Ratio): This ratio compares a company’s market value to its book value, helping investors assess whether a stock is undervalued or overvalued based on its overall net asset value.
EV (Enterprise Value): A measure of a company’s total value, calculated as market capitalization plus debt, minority interest, and preferred shares, minus cash and cash equivalents.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company’s operating performance that strips out the effects of financing and accounting decisions, providing a clearer view of profitability.
Forward P/E: A valuation measure that uses projected earnings for the next 12 months rather than historical earnings, giving investors an estimate of future value.
RoE (Return on Equity): A measure of a company’s profitability that reveals how much profit a company generates with the money shareholders have invested.
RoCE (Return on Capital Employed): A metric that measures a company’s efficiency at generating profits from its capital. It’s useful for comparing profitability across companies in capital-intensive industries.
NAV (Net Asset Value): The value of a company’s assets minus its liabilities, often used in the context of mutual funds to determine the value of a fund’s shares.
DCF (Discounted Cash Flow): A valuation method used to estimate the value of an investment based on its expected future cash flows, discounted back to their present value.
Trailing P/E: A valuation metric that uses the earnings per share from the most recent 12-month period, providing a backward-looking perspective on a company’s earnings performance.
Residual Reserves of Energy Assets: The estimated remaining quantities of energy resources (such as oil, gas, or coal) that can be economically extracted and used. This measure is crucial for assessing the long-term viability of energy companies.
Disclaimer: The content provided is for informational purposes only and does not constitute financial advice. Investors should conduct their own research or consult with a financial advisor before making any investment decisions. Past performance is not indicative of future results.
