Valuing a Company’s Stock

Darin Pastor pic
Darin Pastor
Image: capstonefinancialgroupinc.com

Accomplished financial executive Darin Pastor has more than 20 years of experience in the insurance, mutual funds, and financial planning fields. The former senior vice president of JPMorgan Chase, he currently leads Capstone Financial Group as CEO and chairman. In this capacity, Darin Pastor oversees the company’s acquisitions of stock from other companies.

Buying stock can be complicated, especially if you are uncertain about how to value a business. A good first step when determining whether or not a business is worth your investment is visiting the company yourself. This gives you first-hand knowledge what the company’s facilities are like and how employees and customers interact. You can compare the business’ branding and pricing, as well as check the sales floor if it is a retail business. Meanwhile, you can talk to employees and vendors about non-retail businesses and try their products yourself. Watching the news can also be helpful because it may provide you with new information about the industry and market that the business is in.

If things seem fine in terms of how a company functions, you can move on to checking the financial reports. Look at cash flow, revenue, and earnings over the last several years to get an idea of whether the stock value is likely to increase or decrease during the time you hold stock. You will also want to look at the price-to-book and price-to-earnings ratios. Price-to-book (P/B) ratios represent what value a company would have if it was sold on that day. Meanwhile, the price-to-earnings (P/E) ratio gives you a better idea of how earnings and stock price increases will maintain or not. You will also need to check the price to earnings growth (PEG) ratio to get a better idea of the business’ annual growth.

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