A Market-based valuation is a form of
stock valuation
Stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit from price movement †...
that refers to market indicators, also called extrinsic criteria (i.e. not related to economic fundamentals and account data, which are intrinsic criteria).
Examples of market valuation methods
Technical analysis
Technical analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. As a type of active management, it stands in contradiction to ...
is the most characteristic market-based method, although it focuses more on timing than pricing.
Also, rough market comparison tools such as the
PE ratio and the
PEG ratio are used. More sophisticated forms of analysis (
fundamental analysis
Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, Liability (financial accounting), liabilities, and earnings); health; Competition, competitors and Ma ...
,
quantitative analysis, and
behavioral analysis) use also some market criteria, such as the
risk premium
A risk premium is a measure of excess return that is required by an individual to compensate being subjected to an increased level of risk. It is used widely in finance and economics, the general definition being the expected risky Rate of retur ...
or
beta coefficient
In finance, the beta ( or market beta or beta coefficient) is a statistic that measures the expected increase or decrease of an individual stock price in proportion to movements of the stock market as a whole. Beta can be used to indicate the c ...
.
Those criteria might be "tilted" in some valuation models in anticipation of their possible variation in the next future, or to adapt them to their historical statistical range or
mean
A mean is a quantity representing the "center" of a collection of numbers and is intermediate to the extreme values of the set of numbers. There are several kinds of means (or "measures of central tendency") in mathematics, especially in statist ...
.
See also
*
List of valuation topics
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Price discovery
In economics and finance, the price discovery process (also called price discovery mechanism) is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers.
Overview
Price discovery is diff ...
*
Valuation using multiples
In economics, valuation using multiples, or "relative valuation", is a process that consists of:
* identifying comparable assets (the peer group) and obtaining market values for these assets.
* converting these market values into standardized val ...
*
Valuation using discounted cash flows
*
Valuation using the Market Penetration Model
Stock market
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