How to decide the company's valuation with respect to stock picking decision?

Every company's valuation can be determined through value investing. Value investing alone can bring up the company's growth by its stock picking method. Most of them think about buying and selling the stocks of a company which could be described through its value in the market. But that does not always carry that much impact alone. The real cause for the value depends upon the company's stock price. This alone holds the valuation process in the market. It is simple to analyze the company which is trying to rise their value higher. They just try to trade even if they have less worth of its share.

The stock ex-changers always look for a strong base from the companies. The companies should have proper Profit and loss account. They have to submit proper balance sheet of their company details. Moreover, the company's earnings, cash flow, dividends and book value should be strong enough to attract the investors. This shows the quality of the company, its position and pricing. The company should really focus on these sections. otherwise the company would lose its status and weight-age among the investors.

The valuation considers the current status of the company's stock price. Some of the company would be trading the shares for Rs. 100. But in some scenario it drops to Rs. 10. This might not be showing the companies illness. It is just that the company is less expensive so far. Because of that the trading price could have dropped. So this shows fundamentally the company is facing trouble to gain its position in the market. They are not withstanding presently. They need to focus on their quality building and ability to win the investors' trust.

Here I have to share some piece of my knowledge regarding this thread. Most of the trading depends on the stock value in the market. Most of the investors would be participating in buying and selling the shares. We have seen that till now most of them have created a strategy on how to trade online by judging and analyzing the market status.

But things have been changed a bit. Now the software which are developed as automation purpose are ruling the market. Most of the small and big servicing companies have started using such software to trade in low bid value and high bid value. It depends on its capital cost. These software would scan the current market trend and indicate when we could go for buying and selling. In other words, these software would alert us when we need to buy and when we need to sell the shares. Due to this software, traders feel that they are avoiding a big loss in their values. Even there are some low bid auto trade policies which are been influenced by this software. This helps in eradicating the waiting time for analyzing the market for trading. The software itself trades for the traders. Even if a company goes to loss, it won't be creating much impact on its value.

I am not an expert in stock trading, nor do I involve myself in stock market affairs. Even then, I would want to share what I have known about the concept through my reading and general understanding of the topic.

Check Past performance
Though the companies add a disclaimer that past performance does not guarantee future results, it is not always true. For a better prospects of a company in share market, past performance is indeed the key. Not that it needs to be strong performer year by year, but you should definitely look for the consistent performance in the long run.

Cap means a lot
Make it a point to invest in mid cap large cap stocks. Avoiding the small cap ones would be advisable. If you are compelled to choose a small cap stock, choose the one that conforms to the best of the breeds tag.

Earnings
Look for a company that has a better net gain over the years. A company that has a steady earnings growth can be a good choice. The gain need not be any huge, but I would expect it to be consistent and steadily increasing if I were to choose a particular stock.

Placement of the firm
Check the status that the company enjoys in comparison to the others in the same genre. Check the concerned industry as a whole and then find the relative position of the company in that scenario.

Company management
It would also be practical to pay attention to how is the company managed. Do check the general perception about the company and its overall management. If there are any issues faced in the past, analyse the way the company found its way out of them.

Stability and dividends
These are the two factors that go hand in hand. You will need to analyse the dividend paying patterns of the firm chosen by you. However, high dividends may not be a good sign. It may indicate an impending instability.

Company valuation differs when you are doing the intra-day trading. If you are into long term investment and wish to invest into the dividend based stocks, then the valuation of company and it's stock would be lot different.

Here are some of the ways you can do the valuation for thee stock.

P/E ratio

It is one of the most important indicator used for the valuation. You can compare the companies earning estimates using this. It is in the range around 20 to 25 for most. Based on the data from the short ration and the growth ration, you can get the idea of the company performance.

Cash flow Almost every company in stock market releases annual cash flow statement. You can also compare this data online on their own site or the stock market sites such as moneycontrol, sharekhan etc. Cash flow tells you a lot about the present condition of the company.

Balance Sheet Lot of companies are releasing this data on quarterly basis as opposed to yearly basis like cashflow. So balance sheet is one good anchor to look forward to while investing into the company. You may find that the performance of the company gets measured based on the data from this.

Dividend If the company is allocating bonus or dividend. In such case, you need to hand on that data. You can learn a lot about their profit margin and the share capacity with that data. If the company is not giving the dividend then find out how much is the liquidity of the company.

Return on Equity(ROE)

This is another indicator that most of the people look at for the performance of the company. It goes to show you that how the money of company is being used. And what are the progress point for the company ahead. Book value and EPS are measured in this analysis.

Return On Invested Capital (ROIC)

It is the measure in which the company is giving return of the shareholders money. It shows financial health of a company. It takes into an account the variables such as net income, dividend and total capital invested. It shows how much profit company makes for capital invested.

Business Model

This is one of thee non technical indicator. But it is taken into account by almost every fund house. Business model changes and the working models are very important. The type of sales being made and the type of business model can allow the investor and fund house to understand the future focus of the company.

These are some of the known variables from the investor end. Also most of the mutual fund unit makes you see these variables before investing into fund with companies having this data. This way you can make choice for fund selection. As well as same can be done for individual stock investment.