What are the absolute valuation methods and relative valuation methods in industry analysis? And how to apply it?

Master the methods of absolute valuation and relative valuation, and be familiar with the commonly used indicators and applicability of its model. Absolute valuation refers to the calculation and processing of the basic financial elements of securities to obtain the absolute amount of securities. All kinds of methods based on cash flow discount method belong to this category. The main models include: cash flow discount model, economic profit valuation model, adjusted present value model, capital cash flow model and equity cash flow model. Its philosophical basis is that a security cannot be valued in isolation, but the value of the security to be evaluated is relatively determined with reference to the price of comparable securities. The main indicators include: price-earnings ratio (P/E), price-to-book ratio (P/B), ratio of economic added value to income before interest depreciation and amortization (EV/EBIDA) and absolute valuation of market value return growth rate (PEG). Absolute valuation is to obtain the intrinsic value of listed companies' stocks through the analysis of their history and current fundamentals and the prediction of financial data reflecting their future operating conditions. Absolute valuation methods include discounted cash flow pricing model and B-S option pricing model (mainly used for option pricing, warrant pricing, etc. At present, DDM and DCF are the most widely used pricing models in discounted cash flow method, and FCFE equity free cash flow model is the most widely used DCF valuation model. The role of absolute valuation The stock price always fluctuates around the intrinsic value of the stock. It is found that undervalued stocks are bought when the stock price is much lower than the intrinsic value, and sold for profit when the stock price returns to the intrinsic value or even higher than the intrinsic value. When studying listed companies, we often hear the word valuation, which is actually about how to judge the value of a company and compare it with its current share price, so as to judge whether the share price deviates from the value and then guide our investment. DCF is a rigorous valuation method and an absolute pricing method. To get an accurate DCF value, we need to have a clear understanding of the company's future development. The process of obtaining DCF value is the process of judging the future development of the company. So the process of DCF valuation is also very important. In terms of accurately judging the future development of enterprises, it is relatively easy to judge mature and stable companies, but it is more difficult to judge the future development of enterprises in the expansion period. In addition, the DCF value itself is very sensitive to the change of parameters, which makes the DCF value have great variability. However, in the process of obtaining DCF value, the researcher's judgment on the future development of the enterprise will be reflected, and on this basis, the assumption will be made. With the valuation process and results of DCF, if the future assumptions change, we can get a new valuation by modifying the parameters. Relative Valuation Relative valuation is compared with other stocks by price indicators such as P/E ratio, P/B ratio, P/B ratio and spot rate (comparison system). If it is lower than the average value of the corresponding indicators in the comparison system, the stock price will be underestimated, and the stock price will hopefully rise, making the indicators return to the average value of the comparison system. Relative valuation includes PE, PB, PEG, EV/EBITDA and other valuation methods. The usual practice is to compare, first, with the historical data of the company, second, with the data of domestic enterprises in the same industry to determine their status, and third, with the data of international (especially Hong Kong and the United States) key enterprises in the same industry. P/E ratio PE (share price/earnings per share): PE is a simple and effective valuation method, and its core lies in the determination of E, Pe = p/e, that is, the ratio of price to earnings per share. Intuitively, if the company's earnings per share remain unchanged in the next few years, then the PE value represents the life of the company to maintain a constant profit level. This is a bit like the concept of payback period in industrial investment, but ignores the time value of funds. In fact, it is almost impossible to keep a constant e, and the change of e often depends on the fluctuation period determined by macroeconomics and enterprise life cycle. Therefore, when using PE value, the determination of e is particularly important, which also derives PE values with different meanings. E has two aspects, one is historical E, and the other is forecast E. For historical E, you can use different time points, moving averages or dynamic annual values of E to see what you want to express. For the predicted E, the accuracy of prediction is particularly important. In the real market, the changing trend of E often has a decisive influence on stock investment. P/B ratio PB (share price/net capital per share) and ROE:PB &；; ROE is suitable for extreme value judgment of period. For stock investment, it is very important to accurately predict E, and the changing trend of E often determines whether the stock price will rise or fall. But how much is reasonable for the stock price to rise or fall? PB & ampROE can give a method to judge the extreme value. For example, if a company with a good history of ROE has a good business prospect, the PB value below 1 may be underestimated. If the company's profit prospect is stable and shows no obvious growth characteristics, the company's PB value is obviously higher than the highest PB value in the industry (company history), and the stock price is likely to peak. The cycle mentioned here has three concepts: the fluctuation cycle of the market, the fluctuation cycle of the stock price and the fluctuation cycle of the cyclical industry. There are also three kinds of PB values here: the overall PB value level of the whole market, the PB value level of a single stock and the PB value change of cyclical industries. Of course, the premise of effective application of PB value is to evaluate the asset value reasonably. Increasing the debt ratio can expand the scale of the company's profit resources, and expanding the debt can improve the ROE. So in the use of Pb &；; Debt risk should be considered when evaluating the return on net assets. PEG valuation method is the favorite valuation method used by Peter Lynch. Very simple and practical! The method is as follows: the dynamic P/E ratio of individual stocks divided by the after-tax profit growth rate is less than 0. 8 will have certain investment value. But this method is of little significance to cyclical industries. Therefore, everyone should pay attention to the choice of industry! Through research, it can be found that the profits of industries with periodic changes in commodity prices are most sensitive to the changes in commodity prices. Therefore, when commodity prices rise, it is a certain investment opportunity. When commodity prices are expected to fall, it is time to sell. At the high and low points of the cycle, other methods can be used to judge whether it is overestimated or underestimated. For example, use PB (ROE) and other methods to judge whether it is underestimated. For resource companies, at the bottom of the cycle, the value of unit stock resources can be used as the bottom line of investment. In the rising or falling stage of the cycle, we mainly refer to the changing trend of resource prices. PE value based on accurate profit forecast is a concise and effective valuation method. Valuation methods are interrelated, and profit forecast is the basis of everything, but it is not enough. It is necessary to use several valuation methods comprehensively to reduce risks. Joint valuation Joint valuation is to combine absolute valuation with relative valuation to find stocks whose share price and relative index are undervalued at the same time, and the prices of such stocks are the most promising. The significance of stock valuation helps investors to find stocks whose value is seriously underestimated, buy stocks to be increased and make profits, which directly brings economic benefits; Help investors judge whether the stocks in their hands are overvalued or undervalued, so as to make a decision to sell or continue to hold them, and help investors lock in profits or firmly hold them to obtain higher returns; Help investors analyze the risks of interested stocks. The lower the valuation index, the smaller the downside risk. If the valuation index is lower than 30% or the operation suggestion gives "buy immediately" or "buy" stocks, even if the decline is temporary; Help investors to judge the security and profitability of stocks recommended by institutions or investment consulting institutions, and accept investment advice reasonably; Help investors find the biggest profit opportunities in the hot plate. Under normal circumstances, the stock performance of hot plate is quite different. Although some investors are involved in hot spots, their returns are not high. Then, the valuation helps investors find the best stocks in the hot plate and get the maximum income; Help investors understand the judgment of underestimation in stock valuation information.