Intrinsic & Relative Valuation

Intrinsic valuation means that the stock’s value is judged on its own characteristics. It represents the "true" or "real" value of the stock. Here the balance sheet and annual reports and quarterly earnings will be studied and tools like discounted cash flow will be employed.

Comparative multiples refers to relative valuation. Over there, the stock will be compared with other stocks in the same industry. So P/E, P/B and other such ratios will be used where the P/E of one company is compared with the P/E of another.

The concept behind this is to determine the value of a company in relation to other similar companies.

Stock analysts will compare the intrinsic value of a stock with its various market multiples to assess buying and selling opportunities.