There are many method of measuring value of stock. However I'm proposing most basic stock valuation based on Book Value, Earnings, Dividends and Money Supply:
SV = (BVPS + EPS + DPS) * (M2/M0)
BVPS = Book Value Per Share (Asset - Liability) EPS = Earnings Per Share DPS = Dividends Per Share M2 = M2 Money Supply (Money Market) M0 = M0 Money Supply (Base Money)
Fundamental value of a stock should be determine by it's BV which means total asset of a company if were liquidated today and use some of it's asset to pay of the debt. So technically BVPS is the intrinsic value of a stock. However the company is generating an earning which is profit and loss that should be added on top of the fundamental value of company, so thus EPS should be added on top of Book Value Per Share. Aside from earnings, the stock that you purchase give you dividends as your return so DPS also can be included on top of that. So all in all BVPS, EPS and DPS are the primary valuation of the stock. However most of the stock are traded way higher than their fundamental valuation. The main reason of this is the market dynamics which is driven by central banks printing of base money supply M0. The banking credit system then lend out this money to money markets as loan so that peoples can invest and by the company stock. This money supply extension of credit is known as money market M2 which drive the stock inflated price. The ratio between M2 and M0 are the money multiplier effect that drives the stock price higher than it's valuation. So the Stock Value should be the total number of BVPS + EPS + DPS times the M2 money multiplier as shown by this indicator.
If the stock are traded above their SV value, that means it's an overpriced bubble If the stock are traded below their SV value, that means it's an underpriced burst
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Adding Overlay Function
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This indicator is only applicable for US based stock chart, because we use US money supply to do the money multiplier calculation. For other country stocks take a look our other indicator: - Stock Value EU - applicable for European stocks - Stock Value CN - applicable for Chinese stocks - Valuation Rainbow - applicable for all countries
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Add Gradient Coloring
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Include free cash flow per share in the valuation logic
Check other script to value stock and index: - Stock Value Rainbow: script to value stock based on book value, earning, dividend and cash flow - Index Value Rainbow: script to value index based on fed balance sheet and base money supply - Gold Value Rainbow: script to value gold based on global money supply - Stock Value US: script to check US stock value - Stock Value EU: script to check EU stock value - Stock Value JP: script to check JP stock value - Stock Value CN: script to check CN stock value
per this the SV for NVDA is just 73 when its trading for 477$ today. isnt that way off ?
danny_peanuts
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The 3 value represent the Stock Value with upper band and lower band. You can ignore the upper band and lower band, it's only used for drawing the gradient.
Rog73
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Love your approach but could you provide a bit more information how to read the results. Not sure what I am looking at. Proovide better usage explanation please...or is it just me
danny_peanuts
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@Rog73, Basically it's calculate the fair value of stock based on multiple values of total of book value, earning, dividend and cashflow. The multiplier being used here is theoretical money multiplier which is M2 money market divide by M0 base money. Any value below this valuation is considered cheap and above it is expensive.
Rog73
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@danny_peanuts, I get that part but what do each of the three numbers on the argument scale and how do I understand the gradient or the colors in the plots or styles. I can guess but I'm not absolutely sure of what you are showing
Rog73
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@Rog73, Take the stock NVDA for example what does your indicator tell you about the stock? I assume the 8.77 is book value. What are the others? Is red overvalues or under?
danny_peanuts
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@Rog73, Just example comparison between NVDA, C and AXP stock. According to this indicator NVDA is overvalue, while C is undervalue and AXP is near fair value.
Rog73
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@danny_peanuts, very good. Just to confirm, the low number is book value, blue number is fair value, the highest number is what??
danny_peanuts
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@Rog73, middle number is the stock value, high & low number is upper & lower band to draw gradient which you can ignore.
Rog73
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@danny_peanuts, Thanks, that is very helpful. You may wish to put that in your explanation. It's amazing the overvalued stocks in the market given the macro this past year. Do you think their must be some growth expectation component that should be included for a targeted share value or perhaps some other away to account for the wide desparity of differences. Nice work!!