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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Undervalued Shares

Undervalued Shares

2 posters

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1Undervalued Shares Empty Undervalued Shares Sun Apr 24, 2011 9:01 am

wallstreetguy


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Are there any undervalued shares in the market which i can buy.
How do you calculate them or check them whether its undervalued.

Greatly Appreciate for the comments. Smile



Last edited by Quibit on Sun Apr 24, 2011 9:47 am; edited 1 time in total (Reason for editing : Format condensed)

2Undervalued Shares Empty Re: Undervalued Shares Sun Apr 24, 2011 9:24 am

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics

wallstreetguy wrote:

Are there any undervalued shares in the market which i can buy.
How do you calculate them or check them whether its undervalued.

Greatly Appreciate for the comments. Smile


WallStreetGuy, PE is one measure to evaluate whether a share is undervalued especially when compared to sector.


Here is an example

Short Example :

ABC company 1 Year EPS is Rs 10
Now Trading at Rs 100 per Share.

PE= 100/10=10

Depending on the sector we can identify this as an undervalued share. For example if in Bank/Finance Sector, the sector PE might be 20. If this is 10, then it is undervalued. Fair Value can be PE 15 x Eps 10= Rs 150

As another example , if ABC is in Plantation sector we need to be cafeful as Plantation sector PE should be lower due to risk and volatility. So in Plantation I value say this is fair valeu already.

There many other factors which adds to a share value. It celebrity status, demand and supply, market leader, number of share in the market, pbv , nav etc are a few other facotrs.

But be mindful there are other measure like NAV( net assert value) , PBV( price per book value) to evaluate the value of a share. For example for Land and Property you will be many of the NAV value of companies are higher than the tradign Ppice right now. But their PE is still very high as their earnings have not justified their current price or the potential with a future sector boom.

Hope this simple explanation is useful

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