From the course: Understanding Capital Markets (2019)

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Basics of stock valuation

Basics of stock valuation

From the course: Understanding Capital Markets (2019)

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Basics of stock valuation

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- [Instructor] Common stock valuation is a key part of figuring out if a stock is a good investment for you. If a stock is overvalued and you buy it, you're likely to lose money. Buying undervalued stocks and holding them for the long run, though, can help you to quickly increase your net worth. So, let's take a look at how we might do a valuation on a stock like Microsoft. So I'm here at Microsoft's ticker page on SeekingAlpha.com, and again, you could find this information on many different financial websites. But what we see is Microsoft is currently trading for about $127.72, and the stock has a dividend of $1.84. Now, in order to value Microsoft, we'll need a little formula. I'm in the 02_10_Begin Excel file. The valuation on a common stock is the formula that you see here. Valuation is equal to the expected dividend divided by required rate of return minus the growth rate. So what we need to know is the…

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