Investment valuation is the process of determining an investment’s intrinsic value.
Investment Valuation
What is investment valuation?
- Investment valuation is the process of determining an investment’s intrinsic value.
- Morningstar equity analysts use the discounted cash flow method to value stocks.
- The Morningstar Fair Value Estimate adds more context to a company’s stock price while the Fair Value Uncertainty Rating measures the predictability of a company’s future cash flows.
Research analysts have multiple valuation methods. They often study a company’s income statement, balance sheet, and cash flow statement to understand its fundamentals and predict its value. These reports are published quarterly by U.S. companies. As a result, analysts may shift their valuations once new financial information is available.
Morningstar equity analysts use the discounted cash flow method to value stocks. This helps investors determine how much cash flow a company will have in the future. This is built into the Morningstar Fair Value Estimate, which adds more context to a company’s stock price. Morningstar also offers the Fair Value Uncertainty Rating, which measures the predictability of a company’s future cash flows. Companies with higher uncertainty require a larger margin of safety before earning a 4- or 5-star Morningstar Rating overall.