When you hear about a stock being “overvalued” or “undervalued,” what does that really mean? How can someone say a ₹500 stock is expensive while another says it’s cheap? This is where share valuation comes in — a core concept in investing and one of the most essential topics you will encounter in any stock market course.
Whether you’re a beginner or an experienced trader, understanding how to value a stock helps you make informed decisions and build a profitable portfolio. In this detailed blog, we will explore what share valuation is, why it matters, and the different methods used to determine a stock’s true worth.
This blog is presented by Stock Market Vidya, a leading share market training institute in Nagpur, founded by Mr. Prashant Sarode, where thousands of students have successfully learned practical investing and trading strategies.
What is Share Valuation?
Share valuation is the process of determining the intrinsic value of a stock — that is, its real worth based on company fundamentals, not just the current market price. A stock may be trading at ₹200 in the market, but its actual value based on the company’s earnings, assets, and future growth might be higher or lower.
This valuation helps investors make smart decisions:
- Should you buy now or wait?
- Is the stock underpriced and a good opportunity?
- Is the current market hype justified?
If you’re learning through a share market course near me, this is one of the first financial concepts that gets taught in fundamental analysis classes.
Why Share Valuation Matters
Before you jump into any share market course, it’s essential to understand why valuation is critical:
- Avoid overpaying: Paying more than a stock is worth leads to poor returns.
- Spot opportunities: Undervalued stocks can provide long-term wealth.
- Risk management: Helps avoid bubbles and hype-driven investments.
- Compare alternatives: Choose between different stocks or sectors based on fair value.
Stock Market Vidya’s practical stock market training in Nagpur focuses not just on learning formulas, but understanding how and when to apply them, so you build clarity and confidence as an investor.
Key Concepts Before Valuing a Stock
Before we dive into valuation methods, there are a few terms you should understand:
1. Earnings Per Share (EPS)
It tells you how much profit the company is making per share. Higher EPS generally indicates better performance.
2. Price to Earnings Ratio (P/E)
This ratio compares the share price to its earnings per share. A high P/E could mean the stock is overvalued — or that investors expect high growth.
3. Book Value
This is the net asset value of the company. In simple terms, if you shut down the company today and sold all assets, how much would be left per share?
4. Discounted Cash Flow (DCF)
It calculates the present value of expected future cash flows. One of the most trusted methods used by professionals.
Different Methods of Share Valuation
Let’s now dive deep into the major methods used to value a stock. Each method serves a different purpose, depending on the type of business and investor mindset.
1. Intrinsic Valuation Methods
These methods focus on the company’s actual performance, not the market mood.
A. Discounted Cash Flow (DCF) Method
DCF is widely used by professional investors and fund managers. It calculates the present value of a company’s expected future cash flows. If the DCF value is higher than the current price, the stock is considered undervalued.
- Steps:
- Estimate future free cash flows.
- Discount them using a rate (WACC).
- Add them to get the intrinsic value.
B. Dividend Discount Model (DDM)
This is used mainly for companies that regularly pay dividends (like FMCG or banking). The value of a share is based on the present value of future dividends.
- Formula:
Value = Dividend / (Cost of Equity – Dividend Growth Rate)
If you like investing in companies that reward shareholders, this method helps.
2. Relative Valuation Methods
These methods compare the stock with other similar companies or industry averages.
A. Price to Earnings (P/E) Ratio
The P/E Ratio is one of the most common tools. If a stock’s P/E is lower than its industry average, it may be undervalued.
However, this method is only reliable when earnings are consistent and accurate.
B. Price to Book (P/B) Ratio
This compares the stock price to its book value per share. A P/B ratio < 1 can indicate undervaluation, especially for asset-heavy companies like banks or real estate firms.
C. EV/EBITDA Ratio
EV (Enterprise Value) divided by EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) shows how a stock is priced compared to its earnings power.
This ratio is particularly helpful when comparing companies with different capital structures.
3. Asset-Based Valuation
Used for companies with significant physical assets. Here, you calculate the value of all assets, subtract liabilities, and divide by the number of shares.
Ideal for businesses in sectors like construction, mining, or manufacturing.
Learning Valuation in Real-Time at Stock Market Vidya, Nagpur
At Stock Market Vidya, we don’t just teach you concepts — we show you how to use them with real market data.
- Learn to read financial statements
- Analyze stock screeners
- Practice DCF & P/E analysis
- Compare sectors like IT vs Pharma vs Banking
Many of our students join from nearby areas searching for a share market course near me, and walk away with deep confidence in applying valuation in real-time.
You learn:
- How to spot undervalued stocks using tools
- How to build watchlists
- How to avoid risky, overpriced stocks
When to Use Which Valuation Method?
Understanding which valuation method to apply in different situations is as important as knowing the methods themselves. Each method serves a unique purpose and works best in specific scenarios, depending on the type of business, industry trends, company lifecycle, and financial data availability. Here’s how to decide which valuation technique is most suitable:
1. Discounted Cash Flow (DCF) – Best for Predictable Cash Flow Businesses
Use DCF when:
- The company has stable and predictable cash flows.
- You can reasonably estimate future earnings and growth.
- You are investing in established sectors like IT, pharmaceuticals, FMCG, or auto.
Why:
DCF gives you the most accurate measure of intrinsic value because it focuses on the company’s actual cash-generating ability in the future. It works well for mature businesses with consistent financials.
Example:
You’re evaluating Infosys or HUL. Their revenue and expenses are predictable, making future projections reliable.
2. Dividend Discount Model (DDM) – Ideal for Dividend-Paying Stocks
Use DDM when:
- The company has a long history of paying consistent dividends.
- You’re interested in income-generating investments.
- You want to assess the value of banks, insurance companies, or public sector undertakings (PSUs).
Why:
This method is great when dividend payouts are consistent and form a major part of investor returns. It values stocks based on expected dividends and their growth rate.
Example:
Evaluating companies like Coal India or SBI that have steady dividend policies.
3. Price-to-Earnings Ratio (P/E) – Good for Peer Comparisons
Use P/E Ratio when:
- You want a quick comparison between similar companies.
- The company has stable earnings and is profitable.
- You’re evaluating growth stocks or blue-chip companies.
Why:
P/E is simple and widely used. It tells you whether a stock is expensive or cheap compared to earnings. But it can be misleading if earnings are volatile or manipulated.
Example:
Comparing TCS and Wipro – if one has a much higher P/E, it may be overpriced relative to the other.
We explain how to use sector averages effectively with the P/E method in our share market classes.
4. Price-to-Book Ratio (P/B) – Ideal for Asset-Heavy Companies
Use P/B Ratio when:
- The company owns large physical assets (like real estate, infrastructure).
- You are evaluating banks, NBFCs, or capital-intensive firms.
- The earnings may be low but assets are strong.
Why:
P/B is useful when profits fluctuate, but the asset base is strong and consistent. A P/B under 1 may indicate undervaluation.
Example:
Analyzing real estate firms or banking companies with large fixed assets or loan books.
5. EV/EBITDA – Best for Operational Efficiency and Comparisons
Use EV/EBITDA when:
- You want to assess operational profitability without capital structure noise.
- You’re comparing companies with different debt levels or tax structures.
- You want to value companies with irregular net profits but stable operations.
Why:
It gives a clearer picture of how efficiently the company operates and is often used in M&A (Mergers and Acquisitions) and institutional investing.
Example:
Comparing telecom firms like Airtel and Jio that have heavy investments and debt.
6. Asset-Based Valuation – Useful for Liquidation or Heavy Asset Sectors
Use Asset-Based Valuation when:
- The company owns a large portfolio of physical assets.
- You are valuing businesses that may be sold off or liquidated.
- You’re analyzing industries like manufacturing, oil & gas, or construction.
Why:
This method focuses on the net worth of the company. It’s especially useful for companies with more tangible than intangible assets.
Example:
If a cement company is shutting down or being sold, asset valuation gives a more accurate picture of what investors may recover.
In Real Life – Use Multiple Methods
In practice, professional investors use 2–3 methods together to cross-check and validate results. No single method is perfect. For example:
- Use DCF + P/E for a stable IT company.
- Use DDM + P/B for a bank.
- Use EV/EBITDA + Asset-based for a telecom company.
At Stock Market Vidya, our instructors train students to mix methods logically and apply them using live market data in a structured way.
Is it Necessary to Join Classes to Learn Share Valuation?
The short answer is – Yes, if you want clarity, confidence, and practical skills.
You might find valuation formulas online or through YouTube videos. But stock valuation is not just about plugging numbers into a formula. It’s about understanding context, interpreting data, and applying logic. That’s where proper education matters.
Here’s why joining a professional share market training institute like Stock Market Vidya can make a huge difference:
1. Get Step-by-Step Guidance from Experts
At Stock Market Vidya, Mr. Prashant Sarode and his experienced mentors break down complex concepts into easy language. You don’t just learn formulas — you learn when, how, and why to use each method.
Even students from non-commerce backgrounds become confident in evaluating companies using real tools.
2. Practical Training with Real Market Data
Reading theory online is easy. But applying it to real stock examples like Infosys, Reliance, or HDFC Bank? That requires hands-on guidance.
In our share market course, we use:
- Live case studies
- Balance sheet and P&L analysis
- Mock stock analysis assignments
3. Learn to Avoid Common Mistakes
Beginners often:
- Use wrong formulas
- Misinterpret ratios
- Get influenced by stock tips or media
Proper training saves you from costly mistakes. With expert supervision, you learn to trust logic over hype.
4. Community Support and Peer Learning
Learning in a classroom or batch environment boosts understanding. You can:
- Ask doubts
- Discuss case studies
- Learn from others’ questions and mistakes
This is something self-study can never fully replicate.
5. Learn Software Tools and Platforms
Many valuation methods require Excel models, screeners, and financial tools. At Stock Market Vidya, we show you how to:
- Use Moneycontrol, Screener.in, and other tools
- Build your valuation models
- Read annual reports with ease
6. Build Confidence to Take Independent Decisions
By the end of the course, you’ll be able to:
- Analyze stocks confidently
- Build long-term wealth
- Avoid overhyped, overpriced stocks
You don’t need to rely on random stock tips or advice. You become your own research analyst.
7. Designed for Indian Market Conditions
Many online courses are based on US stocks. At Stock Market Vidya, the entire training is tailored to Indian companies, Indian investors, and Indian market conditions.
You’ll study:
- Indian sectors like IT, Pharma, Banking, FMCG
- Indian taxation and regulations
- Indian investing psychology
If you’re based in Nagpur or searching for a share market course near me, Stock Market Vidya offers the perfect blend of classroom learning, real-time practice, and one-on-one mentoring.
Call now to book your seat: 9822718163, 8421893845
Visit: www.stockmarketvidya.com
Final Thoughts: Master the Art of Valuation
Understanding share valuation is one of the pillars of successful investing. It allows you to make smart, informed decisions and stay ahead of the crowd.
By learning and applying these methods, you gain the ability to:
- See through market noise
- Invest with clarity
- Build long-term wealth
If you’re serious about learning this in a step-by-step, easy-to-understand format — whether you’re in Nagpur or searching for a share market course near me — the team at Stock Market Vidya is ready to guide you.
Take the next step. Learn valuation the right way.
Call: 9822718163 / 8421893845
Visit: www.stockmarketvidya.com
FAQs on Share Valuation Methods
1. Is share valuation necessary for short-term trading?
For short-term traders, technical analysis is often more useful, but knowing valuation helps avoid fundamentally weak stocks.
2. What is the easiest method to start with?
The P/E Ratio is a good starting point. It’s simple and gives a quick snapshot of valuation.
3. Can valuation methods be used for IPOs?
Yes, methods like DCF and P/B are commonly used to judge if an IPO is fairly priced.
4. Is it possible to value a loss-making company?
Yes, using relative methods like EV/Sales or analyzing future potential, but it carries more risk.
5. Do valuation methods guarantee profits?
No method can promise profit. They reduce risk by helping you invest based on logic, not emotion.
6. What if different methods give different values?
It’s common. Use multiple methods and take an average or apply weight based on relevance.
7. Which industries are hard to value?
Startups, tech companies with no profits yet, or cyclical businesses can be tricky.
8. Do I need software for valuation?
Basic tools like Excel and free online screeners are enough to begin with.
9. How often should I re-value my stocks?
Ideally, quarterly or after major events like earnings or market crashes.
10. Can valuation help in choosing mutual funds?
Indirectly yes — mutual funds invest in stocks, and understanding valuation helps judge their stock picks.
11. What is share valuation and why is it important?
Share valuation is the process of determining the fair value of a company’s stock. It helps investors decide whether a stock is overvalued, undervalued, or fairly priced. This is crucial for making informed investment decisions and building a profitable portfolio.
12. Which is the best method of share valuation?
There is no single best method. The ideal valuation method depends on the business type, financial structure, and your investment goals. Professionals often use multiple methods like DCF, P/E, and EV/EBITDA to validate results.
13. What is the Discounted Cash Flow (DCF) method?
DCF values a company based on its expected future cash flows, discounted to present value using a discount rate. It works best for companies with predictable cash flows, like IT, FMCG, and pharma firms.
14. When should I use the Dividend Discount Model (DDM)?
Use DDM when valuing companies with a strong dividend-paying history, such as public sector banks, insurance companies, or blue-chip stocks like Coal India and NTPC.
15. What is the difference between DCF and DDM?
- DCF values a company using overall free cash flows.
- DDM values only based on future dividends.
Use DCF when cash flows are reinvested; use DDM when dividends are key to returns.
16. What does the Price-to-Earnings (P/E) ratio indicate?
P/E shows how much investors are willing to pay for ₹1 of a company’s earnings. A high P/E may indicate overvaluation, while a low P/E may signal undervaluation or risk.
17. Can P/E ratio be used for all companies?
No. Avoid using P/E for companies with negative or unstable earnings. It is most suitable for profitable companies in stable industries.
18. What is the Price-to-Book (P/B) ratio?
P/B compares a company’s market price to its book value (net assets). A P/B below 1 may indicate undervaluation, especially for banks, NBFCs, and capital-heavy businesses.
19. What is EV/EBITDA and why is it useful?
EV/EBITDA (Enterprise Value / Earnings Before Interest, Taxes, Depreciation, and Amortization) helps assess a company’s operating profitability while ignoring capital structure. It’s ideal for comparing companies with different debt levels.
20. What is asset-based valuation?
Asset-based valuation calculates a company’s worth by subtracting liabilities from the total value of its assets. It’s used for asset-heavy industries or liquidation scenarios.
21. Is DCF valuation used by big investors and institutions?
Yes. DCF is a preferred method among professional analysts, mutual funds, and investment banks for its accuracy in long-term valuations.
22. Is share valuation necessary for short-term trading?
Not always. Traders often rely more on technical analysis. However, for long-term investing, share valuation is essential to avoid buying overvalued stocks.
23. Can beginners understand and apply valuation methods?
Absolutely. With the right training — like that offered at Stock Market Vidya Nagpur — even non-commerce students can learn valuation using real-life examples and Excel models.
24. What data do I need for share valuation?
You’ll need:
- Company’s financial statements (Balance Sheet, P&L, Cash Flow)
- Historical performance
- Growth projections
- Industry comparison
Tools like Screener.in and Moneycontrol help gather this data.
25. Are valuation methods accurate in all situations?
No method is 100% perfect. Market sentiment, global factors, and management actions also impact stock prices. That’s why professionals use multiple valuation methods together.
26. How can I learn share valuation practically?
Join a structured course like Stock Market Vidya’s share market training in Nagpur. It includes:
- Live projects
- Real company analysis
- Excel-based valuation models
- Hands-on training with stock screening tools
27. What mistakes do beginners make in valuation?
Common mistakes include:
- Blindly trusting ratios without understanding them
- Using the wrong method for the wrong industry
- Ignoring future growth or industry risks
Training helps avoid these costly errors.
28. Is share valuation applicable to mutual fund investing?
Yes. When evaluating mutual funds, understanding how the fund manager values stocks (large-cap, mid-cap, value vs growth) helps you align investments with your risk profile.
29. Can I do share valuation using online tools?
Yes, platforms like Screener.in, Tickertape, and Equitymaster provide pre-built financial data and ratios. However, interpreting that data correctly requires knowledge and experience.
30. Why should I learn share valuation from Stock Market Vidya, Nagpur?
Because we offer:
- Simplified teaching for all backgrounds
- Live examples of Indian stocks
- Expert trainers led by Mr. Prashant Sarode
- After-course support for doubts
- Practical application, not just theory
Call us at 9822718163, 8421893845
Visit: www.stockmarketvidya.com
