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Calculating the Intrinsic Value of a Stock using EPS

Questions › Category: Valuation Quadrant › Calculating the Intrinsic Value of a Stock using EPS
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Edmund Toh asked 1 year ago

hi victor, thanks for today’s workshop.
some of the parts were a little too fast for me to absorb so here is my question.
may i confirm if the calculation for the intrinsic value of a stock is as follows?
 
Intrinsic Value = (EPS of stock) x (Mean Value of it’s historical PE range, i.e. the ‘horizontal line’ plotted on a PE chart)
 
may i know if is this correct?
thanks,
edmund toh

6 Answers
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Victor Chng answered 1 year ago

Hi Edmund,
 
Yes you are right. If you are still unclear, you can go through the online module below.
 
https://investmentquadrant.com/the-valuation-quadrant/price-earnings-ratio/

Edmund Toh replied 1 year ago

Thanks, victor. Much appreciated.

Victor Chng replied 1 year ago

Welcome :)

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James Lim answered 3 days ago

is there another method to find instrinsic value? you mentioned some companies arent accurate to use PE ratio

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James Lim answered 3 days ago

is there another method to find instrinsic value? you mentioned some companies arent accurate to use PE ratio

Jieren Zheng replied 3 days ago

You can also look at Price-to-Book, Price-to-Cashflow ratios depending on your use case.

Hope it helps.

James Lim replied 2 days ago

Hi Jieren, how to calculate with PB? We find the 10 year average of PE and then multiply by the latest book value per share?

Victor Chng replied 20 hours ago

Hi James,

You can plot the PB chart using the same method for PE chart.

Victor Chng replied 20 hours ago

Thanks JR.

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James Lim answered 2 days ago

so to find intrinsic value you take the current EPS of latest quarter to multiply by the average PE?

Victor Chng replied 20 hours ago

Yes, take the current TTM EPS multiply by average PE

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James Lim answered 2 days ago

do we use the adjusted close price if the company has convertible warrants

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Victor Chng answered 20 hours ago

Hi James,
There is no need to adjust the close price if the company have convertible warrants. you just need to take diluted EPS or BVPS as it has account for conversion.