|
Central Value
Many years of discussion with investment managers made us realize
that they use different valuation tools in their stock selection process.
DeMarche takes the more popular valuation techniques from both growth and value
managers and uses them to calculate a Central Value for each of the 3,000 most
liquid stocks. DeMarche uses a proprietary weighting method to create a Central
Value from such valuation techniques as P/E, Dividend Discount Rate Models,
Price-to-Book, Price-to-Sales, etc.
We calculate the valuation of each company in our database each
month. We then use an individual company's valuation and compare it to that
company's Clone Group. By making this
calculation over time, we are able to determine the relative pricing of one
company versus its Clone Group average and determine whether it is selling
above, within or below its Central Value.
Clone Group along with our Cost of Equity Capital is the basis for our Total
Equity ManagementSM metric.
TEMSM argues for different decisions
within Corporate Finance policy depending on the current valuation
of your stock. For instance, share buy backs should not be
implemented if a stock is priced by the market very much above
historic Central Value.
In addition to understanding Central Value emanating from various valuation techniques, DeMarche's work on Stock
Price and Strategic P/E Modeling help companies understand why their stock is priced the way it is and predict how price will evolve relative to earnings based on financial benchmarks and targets established in strategic plans.
|