Stock Investment Assessment and Analysis Techniques

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Stock Investment Assessment and Analysis Techniques

Stock Investment Assessment and Analysis Techniques

The analysis of stock investments is a fundamental halmto be known by financiers, without good analysis and rational financiers will suffer losses. Stock buying decisions occur when the approximate value of a stake is above the market price. In contrast, the decision to sell stocks occurs when the approximate value of a stock is below the market price.

The stock valuation process needs to be differentiated between value and price. The meaning of value is intrinsic value, while the price is defined as the market price. Intrinsic value is a true value of a stock defined by some fundamental factors of the company. An intrinsic sense of value is reflected in the fact (justified by the fact) such as its assets, revenues, Deviden, and the prospects of the company. The purpose of the stock analysis is to value whether or not the company’s stock pricing is reasonably offered.

An approach to stock investment valuation.
There are several approaches that can be used to assess the price of a stock, but two known approaches are:

A. Traditional approach.

1. Technical analysis.

Technical Analisis is an analytical technique that uses data or notes on the market itself to try to access the demand and supply of a particular stock or the market as a whole. This analysis approach uses published market data, such as: Stock price, trading volume, joint and individual stock price index, and other technical factors.

The assumptions underlying the technical analysis are:

  • There is a sestemmatic dependency in the return that can be exploited to an abnormal return.
  • In inefficient markets, not all past price information is observed when predicting the return of securities distribution.
  • The value of a stock is a function of demand and supply.

Some conclusions regarding the technical analysis approach are as follows:

  • Technical analysis is based on published market data
  • The focus of technical analysis exists; AH timeliness. The emphasis is on price changes only.
  • Analytical techniques focus on internal factors through the analysis of movements in the market and/or stock.
  • In technical analysis tends to be more consetrasi on the short term. Tekinik-Technical analysis techniques are designed for Mendeteksiperegeakanhargadalam a relatively short period of time.

The technical analysis emphasizes attention and price changes rather than price levels. Therefore, technical analysis emphasizes to predict the trend of the price change. Am trend analysis assumes that the behavior of past stock prices can be reflected in the price in the future.

2. Fundamental analysis approach.

This approach is based on a presumption that the stock has intrinsic value. This intrinsic value is estimated by financiers or analysts. The intrinsic value is a function of the company’s variables combined to produce a expected return and a suaut risk inherent to the stock. The estimated intrinsic value is then compared to the market price (current market price). The market price of a stock is a reflection of the average intrinsic value.

Two fundamental approaches are commonly used in conducting stock assessments, namely:

A. The stock valuation is based on the Price-Earning Ratio Approach.

This approach is based on the expected outcome of estimated earnings per share in the future, so that it can be known how long the stock investment will return.

Formula: 1

Expected Result: ((DIV 1 + P1 – P0)/(P0) x 100%
DIV1 = Dividend expected per share sheet
P1 = expected price at year-end
P0 = share price now. 

It is assumed that the ordinary shares of PT Arya sold at the price of Rp. 10,000.00 per share sheet. Investors expect Rp. 2,000.000 dividend for cash per share sheet. Investors estimate that stocks will increase Rp Rp. 2000,00. So, the expected results can be calculated as follows:

Expected Hasi = ((2000 + 12000 – 10,000)/10,000) x 100% = 40%

Formula: 2

It is assumed that the ordinary share price of Pt Arya Diah
Darken Rp. 12,000, 00 Pad year-end period. Investor hopes that the Stockbar dividend shares Rp. 2000,00. Return of expected shares is estimated at about 40%. What is the reasonable share of PT Arya’s shares?

 P0 = ((2000 + 12,000)/(1 + 40%)) = 10,000
In this case, the common stock means reasonable price. It is assumed that the price occurred at that time Rp. 12,000, 00. Means that the price does not reflect the correct information. Chances are that the dividend is expected to be too high or the return is too low. So the analysis will sell the stocks that will result in stock prices falling. In other respects, if the stock price of a low analyst will buy the stock so that the share price in the market will rise. 

B. Present value approach.

In this approach, the value of a stock is estimated by capitalising revenue, hence it is called capitalization income method. The current value of a share is equal to the current value of the future cash flow which the capitalization of the Harpkan received from the investment in the stock. Mathematically, the formula for the intrisically value is:

V (Value) = ((Cash flow)/(1 + k))
K = expected return level

In this model, the dividend is used as the basis of analysis model. The assumption is that the dividend that Dspst received directly from the company so that the dividend is the basis of valuation of the ordinary stocks. Deviden is an acceptable cash flow that can be received every year in the future. Therefore, this model is called Devidend Discount Model (DDM). The formula is formulated as follows:

V = ((D1/(1 + k)) + ((D2/(1 + k)) +…… + etc.
D = Dividend expected to be received in any future period
k = discount rate.

The Constant Growth Model
This type of Model, assuming that the profit at a fixed growth rate from year to year. Earnings include dividend in the capital gain (P1-P0). The increase in profit increases at a constant rate. Therefore it is called a fixed growth model. This means that E1 will be the same against E0 (1 + g). E2 will be equal to E1 (1 + g) and so on. The explanation above can be written as follows:

E1 = E0 (1 + g)
E2 = E1 (1 + G) = E0 (1 + G) (1 + g) etc.
E1 = E0 (1 + g) t

And finally P0 can be calculated with the following as formula:

P0 = ((E0 (1 + G)/(1 + R)) + ((E1 (1 + G)/(1 + R)) 2 +… + DST

P0 = E0 ((1 + G)/R-G)), where
g = growth
r = Discount Rate


It is assumed that the ordinary shareholders of PT Arya gained a profit of Rp. 200,00 in the first year. The expected profit growth rate is 20% over the coming period in an unlimited time. It is assumed that investors expect a return of 40%. Stock price now is Rp. 1250, 00. Thus, the reasonable stock price is as follows:

P0 = ((200 (1 + 0.2)/(0.4-0.2)) = 240/0.2 = 1,200

The current stock price (Rp. 1,250.00) is higher than the intrinsic value (Rp. 1,200, 00). In this case, the stock analyst will sell the stock so that the stock price will likely go down at a price of Rp. 1,200, 00

Model without growth (The Zero Growth Model)
 Reasonable stock prices can be calculated with the formula:

P0 = E0/R

Assumed PT Arya is a company with Zero growth pay dividend Rp. 300,00 stock and the expected return of 25%. The stock price in the capital is Rp. 1,200, 00. What is the correct stock value?

P0 = E0/R = 300/0.25 = 1,200
The analysts conclusion that the stock price is reasonable.

B. Modern portfolio approach.

The portfolio approach emphasizes the exchange psychology aspect of the hypothesis on exchanges, which are efficient market hypothesis. The market efficiently means that stock prices are fully reflected in all information on the exchange.
Regardless of which fundamental approach to use, the Bial financier or analyst wants to use the analyst approach carefully, so he needs a framework. The framework is a stage of analysis that must be
Do it systematically. The phases of analysis are are:

1. Economic analysis.

Economic analysis aims to determine the type and business prospects of a company. Economic activity affects the company’s profit. If the economic growth rate of a country is low, generally the level of profit achieved by the company is also low. So a healthy economic environment, will greatly support the development of the company. In this economic analysis, there are many macro variables, such as: national income, monetary and fiscal policy, interest rate, etc.

2. Industrial analysis.

In industrial analysis need to know the weaknesses and strengths of the company’s industry concerned. Adequate knowledge of the main sector is the economic activity of the company. Important things to consider by financiers and stock analysts such as the sale and profit of the company, the industry’s permanent, government attitudes and policies towards the industry, conditioning in competition and stock prices of similar companies.

3. Company analysis

Analysis Companyto know the performance of the company. Par Penenam Capital requires information about the relevant company as the basis of the investment decision making. Such information includes both internal and external information of the company. Such information is on the information of financial statements of certain periods. In addition, it can also be analyzed regarding solvency, reliability, and liquidity of the company. More importantly it is information about financial projections or forcasting. It remembers that the need for information is estimated on the consideration that stock prices are determined by the company’s past performance and future expectations.

Editor: Alber Andesko

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