4 Easy Ways to Value a Stock

The Investing for Beginners Podcast - Your Path to Financial Freedom

Andrew Sather & Glassbox Media

Business, Investing

4.2 • 1.5K Ratings

🗓️ 20 February 2025

⏱️ 36 minutes

🔗️ Recording | iTunes | RSS

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Summary

In this episode of the Investing for Beginners podcast, the hosts delve into four primary methods to value a stock: Price to Earnings (P/E) ratio, Price to Sales (P/S) ratio, Price to Free Cash Flow (P/FCF) ratio, and Return on Equity (ROE). They begin with an in-depth discussion of the PE ratio, explaining its calculation, significance, and limitations while also providing examples from various industries. They then move on to the PS ratio, highlighting its utility for early-stage growth companies and its limitations. For Price to Free Cash Flow, they detail the calculation process and explain why this metric might be more volatile but useful for valuing a company's cash-generating efficiency. Finally, they explore ROE, emphasizing its importance in assessing a company's profitability relative to shareholder equity and the potential pitfalls associated with debt manipulation. This episode is packed with valuable insights and practical examples to help beginners better understand stock valuation metrics. Link to 4 Ways to Value a Stock Infographic https://www.canva.com/design/DAF9oFDWqqs/InAZ8cTXtihE5PNqD-8DwQ/view?utm_content=DAF9oFDWqqs&utm_campaign=designshare&utm_medium=link2&utm_source=uniquelinks&utlId=hb507626659 00:00 Introduction to Stock Valuation 00:22 Understanding the PE Ratio 03:18 Industry-Specific PE Ratios 05:36 Limitations of the PE Ratio 10:24 Introduction to the PS Ratio 11:13 Using the PS Ratio for Growth Companies 13:47 Introduction to Price to Free Cash Flow 16:10 Calculating Free Cash Flow 23:54 Introduction to Return on Equity 24:44 Buffett's Approach to ROE 29:34 Potential Pitfalls of ROE 30:43 Conclusion and Q&A Today's show is sponsored by: Go to SHOPIFY.COM/beginners to start selling with Shopify today. Go to shipsticks.com and use the code INVESTING for 20% off. Go to get.stash.com/INVESTING to see how you can receive $25 towards your first stock purchase and to view important disclosures. This episode is sponsored by BetterHelp. Give online therapy a try at betterhelp.com/INVESTING and get on your way to being your best self. What do Dave and Andrew recommend? Our free ebook and email series, at stockmarketpdf.com. Find great investments & Connect, Learn and Grow at Value Spotlight Have questions? Send them to [email protected] SUBSCRIBE TO THE SHOW Apple | Spotify | YouTube | Amazon | Tunein Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:50.9	They actually got me into reading stats for anything.
0:53.4	You're tuned in to the Investing for Beginners podcast.
0:57.2	Led by Andrew Saver and Dave Ahern.
1:00.6	Step-by-step premium investing guidance for beginners.
1:04.1	Your path to financial freedom starts now.
1:08.2	Start now. Starts now.
1:18.8	All right, folks, welcome to Investing for Beginners podcast.
1:22.6	Today, we're going to talk about four ways to value a stock.
1:30.7	I created this handy-dandy little infographic that I will share in the show notes that talks about four ways that you can value a company.
1:37.6	And Andrew and I thought we would talk about the four different ways and maybe throw you some examples of companies you can use for each particular type.
1:42.1	So maybe we can start with price to earnings or the PE ratio.
1:44.1	So what are your thoughts on the PE ratio? What does it mean?
1:45.5	How do we figure it out? And what would be some good examples to use with that?
1:51.5	PE ratio stands for price to earnings ratio. You put the price divided by the earnings and that's
1:58.3	your PE. So what that tells you and what it gives you is a tool
	...

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