Equity Valuation: Concepts and Basic ToolsLocked: included in All Access

How analysts estimate what a share is really worth and compare it with the market price: present value models (dividend discount, two-stage and free cash flow to equity), preferred stock, price and enterprise value multiples, and asset-based valuation, with the strengths and limits of each.

1. 1. Intrinsic value, mispricing and the three model familiesValuation means estimating what a share is worth from its fundamentals and comparing that estimate with the market price, using one or more of three model families.Video · 6 minLocked: included in All Access11 min
2. 2. Dividends, splits, buybacks and the payment timelineOnly cash distributions change what shareholders receive: stock dividends and splits just cut the same pie into more slices, a buyback is equivalent to a cash dividend, and a share stops carrying the dividend on its ex-date.Video · 6 minLocked: included in All Access12 min
3. 3. Present value models: DDM and FCFEA share is worth the present value of the cash it will deliver: either the dividends expected (DDM) or the cash the company could pay out (FCFE), discounted at the required return on equity.Video · 5 minLocked: included in All Access13 min
4. 4. Preferred stock and the Gordon growth modelA perpetual preferred share is a perpetuity worth D/r, and a common share with dividends growing at a constant rate forever is a growing perpetuity worth $D_1/(r-g)$.Video · 6 minLocked: included in All Access15 min
5. 5. Multistage dividend discount modelsWhen growth will change, forecast the dividends of the unusual period one by one, value everything after it with the Gordon model as a terminal value at time n, and discount both back to today.Video · 5 minLocked: included in All Access14 min
6. 6. Price multiples and the method of comparablesA price multiple compares a share's price with a per-share fundamental; you can judge it against fundamentals (the justified P/E from the Gordon model) or against similar companies (the method of comparables).Video · 6 minLocked: included in All Access14 min
7. 7. Enterprise value multiples, asset-based valuation and choosing a modelEnterprise value prices the whole business net of its cash, so EV multiples compare companies with different capital structures; asset-based models value a company as what it owns minus what it owes; and combining models guards against the weaknesses of each.Video · 5 minLocked: included in All Access15 min