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Overvalued & Undervalued,

From : Bisal Jain at 11:13 AM - Apr 23, 2010 ( )

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Valuation............
What is valuation?How is it determined?What are the parametres to determine it.
We have seen experts of stock market speaking on Valuation.
The term use are undervalued, Overvalued or valuation at par....there can be many more names for giving ......
Now , how one can come on conclusion that the stock is overvalued or undervalued.I have a big PDF file which explains how to calculate the valuations that someone send me.I have saved it in my computer but has never read it.
If one will try to find a book on how to find valuation, they will find many books and after reading investor will find it fentestic and also would talk to some other stockmarket friend about that book and even refer it to read it.
Why I didn't go through that PDF File speaking on valuation?There are reasons for me not go read it.
I am not sure whether it is still there in my computer, so please don't ask for it........
I have seen that analyst who comes on business channel, says that so and so stock is now fully valued,means very less scope of going up.So one need to sell it or bookprofit in it.
Some stock expert says it is undervalued and can be bought.
I have seen one fund house or FII's or brokerage house giving a overvalued call on certain stock and other will come out with a buy call......in next couple of days......Now why that is happening?When one says it is overvalued why other is saying undervalued?
This gives the answer itself....there are different parametres to look at the valuations and all have different way to analyse it.One find overvalued other find undervalue....why so , because the growth one is able to see, other is not able to see.Or in other words,what one has got the firsthand information after meeting the management, other is not having that and hence one ends up saying it is overvalued and other end up saying it is undervalued........
Well, if there is not a big difference between two opinion then it is OK but when one says is totally opposite to what other say then whom to believe.
Valuation is not a constant thing.It keeps on changing,everyhour, everday , everyweek, everymonth or even everyyear.
A Co, say Aban Llyod, was overvalued in Jan 2009 and need to be sold with so big of debt and I was reading sell call from each and every house and in just one go......Crude started going up....valuation become cheap......look at the 52 week lows and 52 week high........of Aban Llyod....
Just a big order for a Co and stock become CHEAP......one product becomes successful and stock become undervalued.....
Valuation is a constantly changing thing.A stock can remain overvalued or fullyvalued for 2-3 yrs or even 4-5 yrs and suddenly the fortune changes and stock becomes darling and everyone wants to buy it......There are innumerable example like that in Indian Stock market as well in International market.
Valuation depends on how the economy is faring, how the Cos product is doing, what are the future potential of the Cos product,what world will need, how will be the demand,will perticular co will get beniffited from that and over and above that How market is doing.......there are so much of things to be taken care of that it is impossible to say anything on valuation front at anytime unless you have firsthand report.....on any Co.
Nestle was looking costly at 1600 to Dr Vikas and now at 2500 he is asking me whether it is a buy or not.
So at 1600 Nestle was overvalued and at 2500 it is not?Well that depends on how one thinks.If someone think that product will do good and has great future , one can definately go ahead and buy it at even this rate.
There is P/E ratio to decide.People looks at P/E .....sector p/e and see if that stock has lower p/e then other peers gr.....but that is also always not a great thing to do.Market can keep certain stock undervalued for a longer period of time and one can left with that stock not moving at all for entire whole bull run.......
Valuation is also related with demand and supply.If demand is more and supply is less then the stock can soar to great highs....irrespective of earnings.....
I have seen people (read expert) selling stocks at 3-5 times return and that stock went on to give 20-30 times return..............so noone can say that a stock is overvalued or undervalued......I think it is impossible to opine on that parametres.....
Have you ever met with a stock which when you see after 3-6 months or a year and you feel ,you missed it?These thing should have happened with each and everyone.I have no doubt about it.
Now why you were not able to buy it at that time ?What was the reason at that time that you missed such a great stock and ended up with something else which may be a laggard in your portfolio?Because at that time you were not able to see what is there in that stock and hence you didn't buy and those who were able to see bought it and making hay......
If the fundmanagers , analyst and some experts are so great in telling whether a stock is overvalued or undervalued then why their clients or funds Nav is still underpeforming even with the average return of market?
If they are great teller then they should show better return then the market gives but that is not the case........Very less funds gives above average return then market and very less gives same return like market .....
What is value then?Value is brand, value is management,value is growth, Value is foreseeing .....like when I wrote on SNL Bearing Ltd......it is NRB bearing managed Co .....which is showing positive bottomline.....and available at just Rs 11!Can one imagine a NRB Bearing run Co have such a less value? that is VALUE........Like I wrote on Yashraj Containeurs Ltd......great product and great clientele list and great earning .....and stock at 3-4 p/e?That is value.......and mind well, after doing all these market may not give the thumbs up to that stock...and one has to wait for longer period untill others find out..... 

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