1. Stock valuation, potential market value and stock image

Between their fundamentals and their images, stocks lead a double life.
Take advantage of it, shamelessly!

To simplify,

• To make a valuation - of an asset, product, service... - is to estimate a potential market price.

• The goal of a stock valuation is to compare it with the current market price, to see if the stock is worth buying or selling.

Well, it is a bit more complicated. If you are in philosophical mood, click here for a more detailed definition. But you can skip it and go directly to the more practical issue,*how to* evaluate a stock, starting with the question below.

That question is, in stock analysis matters, akin to the Holy Grail quest.

Financial specialists have to surf between several well-known, but often-contradictory, approaches:

Methods using "fundamentals": economic forecasts, probabilities of future results or future net worth, actualization using money rates.

These bases are necessary. But often, the market bypasses them. Why?

The financial science's pillars: "volatility" and "risk premium". They have their interest ...and limits. See the famous "beta coefficient".

Does it measure the stock's risk? Not really, only its correlation to the whole market's risk and return.

The role of "trends" and "momentums", and the attempts (or temptations) to master them with chartism. 

OK, there is something to dig out here ...but we are miles from stock pricing!

The "market efficiency hypothesis". To invest, the big criterion would be chance. Oops, sorry, the stochastic process, adorned with "efficient" diversification. 

This denies, not only trends, but even the need of an evaluation method...

The theory of "complex dynamic systems" (yes, those systems move and get mixed up), aka "chaos theory".

A theory spiced with fractals, butterfly effects, stress, breaking points, stability / instability phases, (vicious) circles, spirals and attractors. 

This "complex determinism" really means ...full uncertainty. Good bye, probabilities!

Although fragmentary, each approach listed above is useful.

But this hides the - mundane - fact that the prices of financial assets reflect both the yin and the yang:

• The assets' characteristics

• The investors' behavior.

Analysts and portfolio managers need a bridge to unite both aspects. This site provides it. It is called the stock image, a simple coefficient (see example below).

Each stock has its own image. It is the bridge that links:

its ECONOMIC value     its MARKET value

Practically, it is the "Price divided by EEV (Estimated Economic Value) ratio". An easy to find coefficient if you know how to calculate an EEV (the next page gives a simple method for that).

As a love bonus or hate discount (see levels/factors page), the image is a coefficient indicating if the market:

  venerates the stock (image > 1)

  or has no special feelings (image = 1)

  or hates it (image < 1).

The image of a stock is a coefficient that:   takes mainly into account the market's behavior towards the stock.   has for current value the stock price divided by the stock's estimated economic value   varies in time, in a bracket specific to each kind of stocks. Thus, a stock's image has:
an indicative maximum value	(reached in buoyant market periods)
a structural value	(average historical market's attitude towards the stock)
an indicative minimum value	(reached in depressed market phases)
that image variation range allows to define indicative high/low potential prices for each stock

However simple and intuitive, this image concept can be used profitably only with a good knowledge of the underlying model (BAPM / Behavioral Assets Pricing Model) and its operational data.

I included in this site the main keys to use it, taken from my treatise-guidebook (only in French, and now out of print, sorry) "Concept d'image appliqué à l'évaluation des actions: à quel cours acheter ou vendre en Bourse".

The first thing to calculate, as shown in the next page, is the economic value

click scam